Remortgaging is an important part of buy-to-let investment
Your buy-to-let mortgage is a crucial component of your investment strategy. Some investors remortgage on a regular basis to make sure that they are getting the most out of their deal.
Reasons to remortgage your buy-to-let property
- Reduce your monthly repayments. Buy-to-let rates may have fallen since you took out your current loan. Your property may also have appreciated in value, lowering the loan-to-value (LTV) ratio of your mortgage. Landlords on lower LTVs can often qualify for better deals.
- Switch to a fixed rate. Variable products have attractive initial rates, but can change in line with market conditions. Some investors prefer the certainty and security of fixed monthly payments. Fixed rates make your outgoings more predictable and allow for easier budgeting. They might suit clients without much spare monthly cash flow, or those worried about Brexit.
- Enjoy more flexibility. Some buy-to-let mortgages have flexible features your current loan may lack. Examples include daily interest calculation, overpayment facilities and portability.
- Raise capital for reinvestment or portfolio expansion. Some investment strategies involve ‘leveraging’ buy-to-let finance to maximise potential returns. Remortgaging to a higher LTV releases the equity in your property, which you can use for many purposes, including investing in additional properties. (Read the section on equity release below for more information.)
- Consolidate other debts. You can also release equity to repay other debts. Your lender will limit what debts you can consolidate, if any. Speak to your advisor for more information.
Be mindful of securing further debt against your property. Your lender may repossess your property if you do not keep up your mortgage repayments. By consolidating your debts, you may pay more over the mortgage term than you would with your existing debt.
Lenders refine their buy-to-let criteria in response to market factors and regulatory pressure. In general, lending criteria broaden and improve in good times. But in some circumstances, clients can find it difficult to refinance their properties.
Your situation may have changed since you last mortgaged your property. Or your lender may have tightened certain criteria in that time. Whatever the case, we may be able to help.
- Complex property types. Houses in multiple occupation (HMOs) and multi-unit blocks need specialist finance.
- Debt or poor credit. Your credit rating might have slipped since you last applied for finance. You may need to apply with a lender who will consider ‘credit-challenged’ clients.
- Insufficient rental income. Local rents might have fallen, or your lender might have tightened their rental cover criteria. We can speak to lenders who consider pay rate rental calculations and lower rental coverage ratios.
- Unconventional property types. Not all lenders will consider ex-council homes, flats above shops or studios (for example). Some properties have unusual construction features that lenders might exclude. But some lenders will consider unconventional properties.
Commercial Trust deals with a wide range of lenders. This includes ‘challenger’ banks and specialists who deal with complex cases. Get in touch with one of our expert advisors to see how we can assist you with your remortgage application.
You should first consult the documentation your lender issued for your current mortgage. Find any letters they have sent to notify you of changes to terms and features. The more you know about your current deal, the more thorough you can be in your comparison.
Buy-to-let remortgage comparison
You might wish to contact your current lender. If you tell them you are planning to switch, they may offer you incentives to keep your business. Any offer they make will give you a benchmark for comparison when you look for other buy-to-let deals.
How have your circumstances changed?
Your situation and goals may have changed since your last mortgage. Perhaps you have amassed a healthy amount of equity in your rental property. Perhaps a nearby development has accelerated local price growth. Perhaps local rents have risen, and improvement work could unlock your property’s earning potential.
Your current mortgage may have features or terms that at first seemed appropriate, but turned out not to be. It could be that you had enough cash flow to reduce your loan, but your mortgage did not allow for overpayments. Or maybe you wished to sign a long-term tenancy agreement, but your mortgage terms prohibited it.
Buy-to-let mortgages can have several flexible features
- Daily interest calculation is less expensive, because capital payments always have an immediate effect
- A drawdown facility enables you to take out further advances, subject to affordability and LTV
- Overpayments allow you to reduce your loan by making payments over and above your usual monthly amount
- A ‘borrow back’ feature enables you to withdraw money you have overpaid
- A few lenders allow you to apply for payment holidays *, where you suspend payments for a set period
- An offset account is a savings account tied to the loan; rather than generating interest, the balance offsets the mortgage amount, reducing the interest payable
- You can transfer portable mortgages from one property to another without having to pay ERCs
- Some tracker mortgages have a ‘switch and fix’ feature that allows you to switch to a fixed rate without having to redeem the loan
- Underpayments *, another rare feature, allow you to pay under your normal repayment amount for a set period
* These features are reliant on the borrower having made previous overpayments. The shortfall from underpayments or payment holidays cannot exceed the amount already overpaid.
Always be realistic in your assessment. Consider how your circumstances have changed, and whether your goals are still tenable. And be full and frank with your advisor when you discuss this. Commercial Trust will always recommend the most appropriate product based on the information you give us.
Property values trend upwards over the long term, and asset wealth can be an excellent source of cash. In fact, capital raising is an important part of many investors’ strategies.
Equity is an illiquid form of wealth. You might feel that your money could perform better when not tied up in property. Instead, you could use it to expand your property portfolio, diversify your assets, improve your properties or pay off other debts. To investors, flexibility is the main draw of equity release.
But a larger loan means higher monthly repayments and a larger total interest bill. If borrowing more means increasing your LTV ratio, you may face tougher conditions and higher rates. And if you struggle to meet the repayments, your lender could repossess your property.
You must strike a balance based on how much you stand to gain and lose by raising capital against your property. Discuss your intentions with your advisor to ensure that you get the most appropriate recommendation.
Step one: Review your portfolio
Examine both the property you wish to remortgage and your portfolio as a whole. Calculate your income and outgoings to see where you are making a profit and where you are making a loss. Consider what you need from your investment in the short and long term, and how your finance could help you achieve this.
Step two: Enquire
You can either call us to speak to an advisor straight away, or submit an enquiry to arrange a call back.
You will then discuss your application with one of our advisors. They will ask you about your property, your personal circumstances and your investment goals. Give as much detail as you can, and include the data you reviewed in step one. Your advisor will tailor their eventual recommendation based on the information you give now.
If, having discussed your application, you do not wish to proceed with us, you are under no obligation to do so.
Step three: Apply for a buy-to-let remortgage
Your advisor will recommend the product that they believe is most appropriate for you. They will send you a Key Facts Illustration (KFI) that explains the features of the mortgage and the lender offering it.
If you are happy to proceed, you and anyone else named on the mortgage will then instruct Commercial Trust to make an application on your behalf. Your advisor will ask for proof of income. They might also request details such as:
- proof of identification
- proof of address
- proof of deposit
- proof of earnings
- details of your current buy-to-let mortgage
- details of the mortgage on your main home
- details of other properties in your buy-to-let portfolio
- a copy of any tenancy agreement in force for the property you are applying to refinance
Your advisor will ‘package’ this information in a way that is most likely to meet approval. In some cases, an application won’t conform completely to the lender’s criteria, but will be strong enough to merit referral to an underwriter. Your advisor will take care of this on your behalf.
Throughout the application, they will provide a single point of contact between you, your lender, and your solicitors. Their goal is to make the process as smooth and expedient as possible.
Step four: Approval
The lender will assess your application and conduct credit checks. Some lenders will look in more depth at your circumstances and business plans.
They will also arrange a valuation and rental assessment of your property. If you have tenants in occupation, you will need their permission to grant the valuer access.
If the lender declines your application, we will do our best to explain why and look for a suitable alternative. If they approve your application, the final stage begins.
Step five: Acceptance and completion
Your lender will send you a formal written mortgage offer and a mortgage illustration. The illustration should contain the same information as your KFI; be sure to check whether any details have changed.
If you are happy with the offer, sign and return the document. The lender will repay your previous mortgage provider and send any remaining funds to you through your solicitor.
The remortgage process is then concluded. But the advice process is ongoing. Our team will keep in contact to ensure that the finance you have in place is still suitable for your needs. And when you next want to apply for a buy-to-let remortgage, Commercial Trust will be ready to help.