Buy to Let Remortgage

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Buy to Let Remortgage

Buy to Let Remortgage Frequently Asked Questions

Richard Campo explains the process of remortgaging your Buy to Let property.

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. 

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How long does it take to remortgage a Buy to Let? 

At the moment it’s quite challenging and so it could take anywhere up to six or 12 weeks to get a mortgage offer from some banks. But It could be as short as two weeks – it’s a real mixed bag. 

This is why we engage with our clients very early. Invariably the slowest lenders are the cheapest – because they’re doing the most applications. So that’s a big benefit in starting six months out. It secures the product. The moment we hit submit on an application, that secures the rate. 

What costs are involved?

If you’re just simply refinancing your property no stamp duty should be payable. If you’re moving a property from your personal name to a limited company that is a sale, so technically stamp duty could be payable. I believe that can be mitigated but you will need tax advice on that.

Other than that, lenders tend to charge their own application fees – and while some of them charge nothing at all, with Buy to Let they can be as high as 2% or 2.5% of the loan amount. Some banks offer a fixed fee of £1,000 or £2,000. 

Some banks offer free surveys and free legal work. We do a very simple calculation to help you decide which is the most effective deal for you.

As an example, with a five year fixed rate mortgage, which is very popular at the moment, we will work out how much you would be spending in total over that five-year period. We add up the fees, costs, interest and everything to see what will save you the most money. 

Sometimes we go for banks with a higher interest rate but lower fees, or sometimes lower fees with higher rates. It all depends on the loan amount. Generally the larger the loan amount, the higher the bank fee you can tolerate – it keeps the overall ‘annual percentage rate’ lower. We make it all as simple as possible for clients to understand. 

What are the benefits of remortgaging a Buy to Let property?

The biggest factor is that the quicker you act, the more money you save. As a broker we will take the opportunity to review your full situation. We explore whether you wish to extend the borrowing to buy other properties or achieve other property plans. 

With rental property you may wish to do some renovation work. We’ve seen lots of clients over the last year focus less on buying and selling property and more on improving what they’ve got. There’s all sorts of things you can do, so it’s a good time to review where you are and look more broadly.

With rates rising, it’s a complex time. It seems that every year things get more complicated. It’s good to sit down and offer some ideas. We are always focused on how we can save you the most money – talking to a bank won’t necessarily do that. That’s the obvious advantage we can offer.

What other advice do you have?

The Buy to Let arena is very complicated and there’s many things you can trip up on. I haven’t even touched on Loan to Value  – there’s just so much to factor in. 

But we take all that hassle away. And because it’s so complicated, many banks don’t deal with the public. Even if you’ve got an existing mortgage with them they often tell you to come back via a broker. 

So if you’re not talking to a broker I can guarantee that you won’t have access to the best products. We get exclusive deals, but more importantly we have access to a whole suite of things that you simply can’t find going direct.  

We also have access to all the options, fast. You don’t have time to walk up and down the high street or spend hours on the phone. Meetings with banks often take weeks to materialise and banks won’t offer you advice. 

In today’s environment, with rising interest rates, that’s crucial. Hanging around waiting for meetings will cost you money. We can just plug into the market online and save you time, money and hassle.

Your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate some Buy to Let Mortgages.

There may be a fee for mortgage advice, however, the precise amount will depend on your circumstances. If a fee is charged, a typical amount is £495