Understand Buy-to-Let Remortgages (Guide) and Compare Rates
The number of people requesting buy-to-let remortgages are on the rise. A new report has confirmed that there is a growing trend of landlords establishing new buy-to-let companies, with 47,400 created last year alone. With such an increase in demand, it is becoming increasing more complex to secure a completive monthly rate when remortgaging a buy-to-let property.
Getting the best buy-to-let remortgage will depend on the applicant’s circumstances and a few contributing components, which we cover in this article. Read the article for more information about the topics, and when you are done reading, compare the best buy to let remortgage deals for free.
The following topics are covered below:
A Definitive Guide to Buy-to-Let Remortgages
It’s always better if you gather knowledge before taking a decision. And when it comes to property, knowing the topic is essential. Here we have covered all the questions you may have regarding buy-to-let remortgages.
What is a Buy-to-Let Remortgages?
When your current mortgage product term expires, you can apply for a buy-to-let remortgage, also known as a BTL remortgage. It’s termed remortgaging if you’re moving to a new mortgage. If you can locate a mortgage product with lower interest rates, you may choose to remortgage a buy-to-let property. You could save money on your monthly payments until your mortgage term expires if you make the switch.
Remortgaging your buy-to-let is a smart method to acquire a better interest rate or alter your mortgage agreement’s conditions if you need to release equity. For whatever reason, refinancing your buy-to-let property can have a significant impact on the amount you pay each month and your investment’s overall return. The standard variable rate (SVR), which can range from 4% to 6%, may be in place if you have completed your fixed or tracker starting rate period. Consider a £100k interest-only mortgage with an SVR of 5.25%. Your monthly payments will be roughly £438 per month at this rate. Mortgage rates as low as 3.9% may be available to those with a 75% loan-to-value (LTV), allowing them to cut their monthly payments by an average of £113 per month, or £1356 annually.
What rates are available on a Buy-to-Let remortgage?
Buy-to-let remortgages come with the same rate possibilities as other types of mortgages regarding remortgaging. Naturally, you want to remortgage for the lowest possible rate, but you also need to decide what kind of deal you’re looking for. In most cases, you’ll have to choose from the following three options:
Fixed-rate: The interest rate on a fixed-rate buy-to-let remortgage will not fluctuate during the agreed term throughout the mortgage length. This means that your monthly payment will remain the same till the end of the fixed term.
Variable rate: Your rate will follow the typical variable rate with this buy to let remortgage (SVR). The SVR is determined by the lender using the Bank of England base rate and the cost of providing a mortgage.
Tracker: This rate is set to be higher than the Bank of England’s base rate. This implies that depending on when the base rate changes, it could go up or down at any point throughout your buy to let remortgage arrangement.
Discounted rates: This is a predetermined reduction in the lender’s SVR. The rate you pay will fluctuate if the SVR changes.
Stepped rates: Throughout the contract, the rate you get rises. For instance, a three-year stepped agreement that starts at 1.5 per cent could rise to 2 percent in the second year and 2.5 per cent in the third.
Interest-only deals may be more inexpensive if you’re remortgaging a buy-to-let property. An interest- only remortgage is one in which you just pay back the interest you owe.
What are the early repayment charges on Buy-to-Let remortgage?
Because lenders expect to lose money if you pay off your mortgage sooner than expected when using a fixed or tracker rate arrangement, they charge early repayment fees. If you choose to pay off your mortgage early, you will pay this cost. Switching from one lender’s standard variable rate (SVR) to another normally doesn’t result in early repayment fees. Typically, you will not be charged more than a few hundred pounds for exiting your lender. ERCs, on the other hand, could be in the tens of thousands.
Flat-rate charges for early repayment are not common. The amount of money you’ve borrowed (the size of your mortgage) and the length of time you’ve agreed will influence the cost. A portion of the principal balance of your mortgage may be charged as an early repayment penalty if you pay off your loan early. The typical percentage ranges from 1% to 5%. For example, with a 5-year fixed rate contract, your exit penalty might be 5 per cent in the first year, 4 per cent in the second, 3 per cent in the third year, and so on.
For example, paying a £200,000 mortgage would cost £10,000 in the first year, but switching to a lower- priced plan in year five would only cost £2000 more. Towards the end of your mortgage term, you’ll pay less in early repayment fees. For example, if you owe £10,000 and the ERC is 1%, you will only be charged £100. Therefore, paying your mortgage in full may save you money on interest if you have the resources.
What terms are available on a Buy-to-Let remortgage?
You can expand your portfolio by remortgaging your current property, but the best strategy depends on what bargains are available. For example, if you own four or more homes, you may consider a portfolio mortgage, combining all of your mortgages into one loan. This will allow you to pay off your original buy to-let and replace it with a new one.
Can a Buy-to-Let remortgage be done on a company name?
Yes, a buy-to-let remortgage can be done in a company name. If you’re a sole proprietor or a corporation, your options for a mortgage lender will be limited. Investing in real estate through a limited company can provide significant tax advantages for small and big portfolio owners, especially those paying higher tax rates. If you wish to buy a house as a group rather than just one or two people, a limited company mortgage is ideal. If things don’t go as planned, you can utilise them to shield yourself from personal accountability. Individual mortgages and varied company formats are evaluated differently regarding lending requirements.
Typically, a lender will require two years of financial statements from a trading company to buy a property. The lender may also request directors’ guarantees. In addition, a personal guarantee from the directors of an SPV, which is a limited company specifically set up to purchase buy-to-let properties, is once again required by most lenders.
What factors will affect a Buy-to-Let remortgage?
When applying for a buy-to-let remortgage, lenders may assess your income, just as they would for a regular mortgage. It’s critical that the lender examines your income and compares it to the buy-to-let refinancing conditions. They’ll use this information to determine how much money they’re willing to lend you. Some lenders have a minimum income criterion that must be satisfied, but the lender determines the amount. When reviewing your application, lenders will usually look at the following components of your
income:
- Basic Salary
- Benefits
- Incentives or Bonus schemes
- Investments
- Dividends
Other factors include.
Market Unpredictability: If the property market is exceptionally unpredictable when you submit your application, The subject property may be undervalued when a surveyor gets a chance to look at it. Lender may offer a reduced loan amount, due to the loan to value change as the surveyors may have reduced the value of the subject property during the BTL re-mortgage application.
Credit History: There are a variety of lenders that will offer different mortgage rates depending on the credit history of the applicants that apply. Those with previous credit issues, may either be rejected by lenders or faced with a higher rate than those with a better credit history. There are a variety of lenders that will offer different mortgage rates depending on the credit history of the applicants that apply. Those with a bad credit history, may either be rejected by lenders or faced with a higher rate than those with a better credit history.
As a result, you must go through all of the terms of your present mortgage and figure out ahead of time what fees and costs you’ll have to pay if you remortgage. The amount of money you can borrow is also determined by the amount of equity & rental income for the subject property.
How much money can be raised on a remortgage?
One of the most common reasons for remortgaging is to lower the cost of their mortgage payments, such as when a fixed rate expires. You can, however, take advantage of the opportunity to release equity from your house when you convert to a new mortgage. Property values have skyrocketed in recent years. According to the Halifax House Price Index, house prices increased by 8.2% in November 2021. The average price of a home in the United Kingdom has risen to £272,992, a new high, with the average price of a home in Wales exceeding the £200,000 barrier for the first time. Typically, you can borrow up to 80% of the property price.
Several factors influence the amount of equity you can release, including the amount of equity you have, the value of your home, the length of time your mortgage has been outstanding, and your age. Your income, affordability, and credit score will all be considered. To find out how much more you may borrow, use one of the many online refinancing calculators available on many lenders’ and brokers’ websites. It could be worth speaking with a mortgage broker to get a clearer understanding.
Can I be refused for a remortgage?
Yes, you can. Your refinance request may be denied based on your credit score and previous mortgage experience. Each lender has its criteria; thus, some factors may cause your application to be rejected by one lender but not by another. These are some of the most typical causes of mortgage rejection:
- You’ve recently missed or made late payments.
- In the last six years, you’ve had a default or a CCJ.
- In the last six months, you’ve made too many credit applications in a short period, resulting in many hard searches being recorded on your credit report.
Can I remortgage my current home to help me purchase a buy to let?
Yes, you can. Buying a second property as a buy-to-let investment or because you have a valid reason for a second house are two popular reasons to refinance your mortgage.
Most mortgage lenders are willing to let you remortgage your buy-to-let home to release equity, especially if you plan to use the money to improve it. This will be looked at favourably because the planned modifications will assist in raising the property’s worth. All the better if your buy-to-let is in a popular neighborhood and you’re utilising the money to enhance the property to take advantage of the higher rents in the area. There’s no reason why you can’t use the equity you’ve built up in your first home to buy a new one.
The reason you’re refinancing your buy-to-let home can have a huge impact on which lenders and terms you qualify for. For example, your application may be considered differently if you’re looking to release equity for home upgrades or to use as a deposit for another property than if you’re merely looking to move to a better interest rate.
