Buy to Let Remortgage

Can you remortgage on a Buy to Let?

Remortgaging is almost always a good idea. A lot of people stick with their bank by default – and the banking industry relies on that inertia. Today, in August 2022, interest rates are rising really quickly, so it’s important to look at your mortgage deal. 

There’s an important technical difference between a remortgage – which is changing lenders – and getting a new product with your bank. That’s technically called a product transfer. With a product transfer you can only go to your existing bank three months before your deal is up. But you can remortgage six months in advance of your product ending. 

To put that into context, in the last three months alone the Bank of England has raised rates by 0.75%. On a £100,000 mortgage, waiting three months could therefore cost you £750 extra per year. 

What we do is talk to our clients six months out from the end of their deal. Even if your existing lender has the best prices, we go to the next best lender – because you simply can’t apply for another three months. We then book you a product. Then, three months later down the line, we look at whether it’s better to stay with your planned remortgage or stay with your existing lender. 

In the past 12 months we haven’t had one instance where it’s been better to stay with a bank – because rates are moving so quickly. Starting that remortgage process early will save you a lot of money down the line.

Can I be refused a Buy to Let mortgage?

Yes, you can be refused, but a broker will prevent that from happening. If we spot anything in your credit profile or any reason why you might be refused, we typically don’t apply to that bank. 

Instead we get you what’s called an Agreement in Principle, which is initial mortgage approval. We certainly wouldn’t waste anyone’s time by going down the wrong path. 

If there is anything that might prevent you from getting a remortgage, a product transfer can be a good option. There’s no underwriting on a transfer – as long as you have paid all your mortgage payments, your existing bank will be happy to keep you. 

How do I remortgage a Buy to Let – what is the process? 

It’s the same as any remortgage. The initial approval involves a credit and affordability check, plus a valuation which can be carried out physically or remotely. If you’re borrowing a very modest amount against the property, a lot of banks do the valuation online now. Then the offer is issued and then you’ll complete the mortgage. 

If you’re switching lenders a solicitor is involved, but if you stay with your bank there’s no legal work at all. 

The affordability part is very relevant for Buy to Let. The calculations have changed a lot in recent years. Even if you tick all the criteria boxes, if you fail the affordability checks it can all fall apart. 

The rules are set by the Prudential Regulation Authority – the FCA doesn’t actually regulate mortgages. In 2017 the rules changed to assume an interest rate of 5.5% for affordability, because interest rates were low at the time. 

For a mortgage of £100,000 at a 5.5% interest rate, that’s a monthly payment of £458 on an interest-only basis. The bank then assesses that the rent needs to cover that by a further 145% – that’s called the Interest Cover Ratio (ICR). The total is £664 per month for rental income. 

Working it backwards, for every £664 a month you get in rent, you can then borrow £100,000. If you’re borrowing a very modest sum on the property this is fairly irrelevant, but if the property is more highly geared or you want to raise extra money, it becomes very important.

The interest cover ratio covers things like tax, void periods, maintenance etc. So there are two calculations – one to account for interest rates rising over time, and one for the ongoing costs of renting out the property. 

There are a couple of things we can do around this. First, you could take a 5 year fixed rate, which softens that calculation a bit depending on the lender. The rate might go down to 4.5% and the ICR down to £125%. If you still don’t fit with those calculations, some banks do something called Top Slicing. Here, if you have a good personal income they will add that into the mix to grant you the loan.