How to get the best buy to let remortgage deal

When you are approaching the end of your initial rate period/deal period, it is vital to investigate a buy to let remortgage, to avoid significant increases in costs.

Remortgaging typically saves you money

When you are borrowing on a like for like basis (i.e. you are not increasing the loan amount) remortgaging will typically save you money.

At the end of the deal period of your mortgage, the monthly mortgage cost will start to be calculated based on your lenders reversion rate. It is incredibly rare for that rate to ever be less than the rate you were on, and highly unlikely for it to be less than other available products in the marketplace.

This is why planning well ahead of time to get a remortgage deal in place is critical.

Investigate your options 6 months ahead of renewal

A sensible timeframe to investigate your mortgage options is 6 months before the end of your initial rate period. Be clear that the initial rate period is not the same as the term of your mortgage. The term of your mortgage is the total amount of time over which you want to have any mortgage in place on your property.

The reason to start looking at remortgage options 6 months ahead is because mortgage offers have an expiry of 3-6 months, so you can get a product lined up ahead of the expiry date of your mortgage, which has a number of benefits – read on for more on this.

Can I remortgage my buy to let early?

You can remortgage your buy to let before the end of the initial rate period, but you may have to pay Early Repayment Charges (ERCs), which is a penalty charged by the lender. ERCs are charged by a lender because, when you repay early, they miss out on income from the interest they were expecting to receive from you.

Reasons to remortgage

The main reasons landlords choose to remortgage are to:

Reduce monthly payments

One of the most common motivations is to lower monthly costs. If mortgage interest rates have fallen since you took out your existing product, you may be able to secure a lower rate. This can reduce your monthly mortgage payments, if you borrow the same amount as on your existing mortgage (if you increase your borrowing, the cost of your monthly payment is likely to be affected where the overall term remains the same).

For example, dropping even 0.5 percentage points on a large BTL debt can significantly reduce monthly outlay. 

As a result, better cash flow improves yield and can make the property more resilient against voids or unexpected costs.

Lower overall borrowing costs

Lowering monthly payments is part of reducing overall borrowing costs. When you remortgage to a cheaper product, the total interest paid over the initial rate period reduces. 

Bear in mind that the costs over the initial rate period includes interest plus fees. A product with a slightly lower headline rate might have higher fees, which can erode the benefit, so comparing the overall cost of the product over this timeframe is essential.

Overall cost over the term is less relevant. As a savvy property investor you would always remortgage at the end of an initial rate period, so the total overall cost over the full mortgage term changes with each different product you take.

Raise capital (release equity)

Remortgaging provides a way to access any equity that has built up in your property. Equity is the proportion of the property you own, versus the proportion the mortgage lender owns.

Growth in your equity can occur through capital growth, which is where the value of a property increases over time. Bear in mind property values can also go down, so you typically have to wait a few years, or be lucky to buy just before an upward spike in property prices before this may happen (and it is not guaranteed).

You can also grow the equity in your property as a result of mortgage repayments. You will only achieve this if you choose a capital repayment mortgage. An interest-only mortgage only pays the money you owe the lender for them lending you the money to buy the property. 

Releasing equity can be used to:

• Buy additional rental properties
• Fund renovations or refurbishment (which may help landlords on the approach to changes in minimum energy performance requirements, due to be in imposed in 2030)
• Repay other, higher-cost business or personal debts
• Invest in other ventures

For landlords who want to scale a portfolio, releasing equity tax-efficiently is often central to growth strategies. 

However, increasing borrowing also increases leverage. Leverage is the proportion of the property owned by the lender, versus the amount you as the borrower own. As such increasing borrowing also increases risk. 

Where you own a smaller proportion of the property, the risk to you is greater, as property prices could drop and put you in what is called “negative equity”. Negative equity is where the property is worth less than the loan the lender has given you. 

So, when you release capital/equity from your property, you should balance the amount you release against rental income and interest rate risk.

Change the loan structure or terms and conditions

You might remortgage to change the structure of your borrowing or because your needs or circumstances have changed so you need a mortgage with different terms and conditions. Examples include:

• Moving from a variable to a fixed rate to secure payment certainty
• Switching from interest-only to a repayment mortgage (or vice-versa) to change cash-flow
• Consolidating multiple mortgages onto one deal to make administration easier 
• Adjusting loan term length to better align with investment goals

The structure you choose depends on risk tolerance, cash flow demands, your investment timeframe and your current needs and circumstances.

Debt consolidation and simplification

If you have multiple BTL mortgages, consolidating them into one facility can simplify management – there will be one monthly payment, one renewal date, one lender to deal with etc, etc. This may also reduce costs if the consolidated rate is lower than the weighted average of individual rates.

It is also possible to consolidate other debts, beyond property, by remortgaging to a higher BTL mortgage amount, and using the money you raise to pay off those debts. This can make sense if your monthly payments to repay debts are at a point that you are struggling to cover all your bills from your monthly income. 

As mentioned above, mortgage interest rates can be lower than interest rates charged on other forms of debt. So, if you pay off other debt and move the amount you owe onto the mortgage loan, it might mean the cost of repaying the debt reduces. 

Another tactic to help you reduce a monthly mortgage payment is to lengthen the overall term over which you repay the debt. But, one thing is really important to keep in mind, you must:

Think carefully before securing debts against your property. Your property may be repossessed if you do not keep up repayments on your mortgage. By consolidating your debts into a mortgage you may be required to pay more over the entire term than you would with your existing debt.

To explain that last sentence further, if you do extend your mortgage term; whilst your monthly payment could reduce, you will be paying interest on a larger number of individual monthly payments overall and as a result of this, when you get to the end of the mortgage term the total amount you repay is likely to be greater than if you had not done this. 

Understanding costs: fees and charges

Fees are a very material part of the remortgaging process. Buy to let products often have an arrangement fee, a valuation fee, legal fees and broker fees.

Arrangement fees

These are charges from a new lender for setting up your mortgage. They can be:

• Fixed cash fees
• A percentage of the loan (for example, 1.5 or 2 percent)

A percentage fee can look low in headline terms but becomes large on bigger loan sizes. Conversely, a fixed fee (for example, £999) can be lower cost on large loans but relatively more expensive on smaller ones. Always compare both the product rate and the total fees. 

When you work with a broker they will do all of this for you and should present one product that best matches your needs and circumstances. If they offer you a choice of products based on loose information you have given them then they are not giving you the best possible service they could and are making you do your own due diligence.

This is where Commercial Trust stands out on the service we deliver, we do all of that due diligence for you and we make sure we find out all the details of your case to find you a product which matches your requirements and situation and also guards against a lender declining your application.

Valuation and legal fees

Lenders require the security property (the property you are borrowing the mortgage for) to be valued by a professional conveyancer. 

This is because, if you have told a mortgage lender the property is worth a given amount, and it is worth less than that, they risk lending you more money than they would get back if you failed to keep up with your mortgage payments and they had to repossess the property and sell it to recoup the debt.

Some mortgage lenders offer incentives with their products, this is especially true on remortgages, because they know another lender has valued your property and you have been paying a mortgage, so the risk to them in lending to you is reduced. 

These incentives can include a free valuation, free legal costs (typically limited to basic legal costs covering routine work, it may not cover any specialist legal work required), or cash-back on completion to go towards legal costs. 

Not all lenders offer these incentives, so you may have to cover the cost of the lender valuation and your own legal costs, but again, our broker team will examine all of this before presenting you with a product, so that what we recommend matches your priorities, whilst also encompassing your needs and circumstances.

Early Repayment Charges (ERCs)

If you exit your current mortgage before the end of the initial rate period, your existing lender might impose an ERC. This cost can be significant, especially on fixed or discounted deals, or if you have only had the mortgage for a small proportion of the initial rate period. 

For example, if you take out a 5-year initial rate deal, and you want to change the mortgage after one or two years, the lender will often charge you a higher percentage of the loan amount as an ERC than if you wanted to exit the mortgage in year three or four.

If you think there is a risk your mortgage plans will change in a given timeframe, then adjust the deals you consider based on the length of the initial rate period (which are typically over two or five years, with some outliers). 

If you need total flexibility to exit your mortgage at any time, because your position is uncertain, you might choose a lifetime variable product with no ERCs. You will then need to weigh up if the mortgage interest rate you can achieve on a lifetime variable with no ERCS will still be financially advantageous over a shorter fixed rate with ERCs.

This is another benefit to working with a broker, the complexities around all of this can become overwhelming and hard to understand. A broker will clear the path ahead and give you a comprehensive picture of the best outcome that can be achieved for you.

Broker fee and lender arrangement fees

Lender arrangement fees can often be added to the mortgage loan, but this tends not to be possible with mortgage broker fees.

To be able to add a lender arrangement fee to the loan, the total loan amount must not exceed the loan to value threshold of the mortgage product.

If you add the arrangement fee to the mortgage loan, bear in mind that this can impact your next remortgage. 

If your property does not grow in value by the amount you have added on to the loan, you will in effect be reducing the equity you have in the property. This could push you into a higher loan to value ratio, which may come with higher mortgage interest rates.

When you add an arrangement fee to your mortgage loan, it is also worth noting that as this is now within your overall loan, you will pay interest on it.

Adding fees to the loan can be helpful, particularly when capital is needed elsewhere, but it’s rarely the cheapest option, because you effectively add to fees by paying mortgage interest on them rather than just paying the one amount chargeable.

The role and benefits of using a specialist broker

Remortgaging buy to let property may on the surface seem straightforward, but product choice and lender criteria is complex, as described above. When you work with Commercial Trust you will benefit from:

• A wider range of lenders: Not all buy to let deals are available directly through lenders’ websites.
• Access to exclusive rates and products: As a result of the volume of deals we place with lenders, we have strong relationships and access to preferential products. 
• Understanding of lender criteria: With over 80 lenders in the market, navigating each one’s criteria to know who to apply with is a huge task, we can do all of this for you.
• Guidance on complex cases: Many brokers handle residential applications as well as buy to let mortgages, but with the increasing complexity surrounding buy to let mortgages many will only work on simple cases. Limited company borrowing, specialist properties like holiday lets and HMOs (Houses of Multiple Occupation) often fall outside their expertise. Not with Commercial Trust. We focus specifically on investment finance, so you can be confident we excel at it.
• Clear and easy comparison of costs: Calculating the most cost effective option alongside working out criteria is a complex task you can hand off to our team.
• Application management: Chasing up solicitors and lenders for updates can be frustrating, stressful and eat into your time that could be better spent elsewhere. We’ll take all of this work off your plate, whilst making sure you know exactly what is going on with your case, so you have peace of mind.
• Timing and market considerations: By speaking to us 6 months prior to the expiry date of your initial rate period (we contact existing clients in this timeframe), we can tell you what mortgage interest rates are doing. If they are trending up, you could save you a significant amount of money by locking in a lower rate mortgage offer before they rise further. Mortgages offers typically have a 3-6 month expiry. If rates are static or are trending down, you can benefit from the security and peace of mind of doing the same thing, but select a product with a free valuation, so you can change products if something better is released, without incurring costs.
• Lender product changes: Lenders update products frequently. Rates and criteria change in response to competition and market conditions. We can update you on all of this, to set you up for success.
• Influence with lender teams: When you need special help or a particular level of service, we can speak directly to lender underwriting teams, business development managers and senior staff at the lender to get the job done.

Struggling to remortgage?

If mortgage interest rates have risen significantly since you last renewed your buy to let, you may find it hard to find a product that meets lender affordability requirements.

• 5-year rates are more flexible on affordability than 2-year rates, so you may be able to secure a deal in this way.
• You may have to increase the rent you charge in order to make an affordability calculation fit with your borrowing requirements. 
• If these options do not work, but you have available disposable personal income, we can approach lenders who offer “top-slicing”.

Top-slicing is where a lender will take your available disposable income into consideration when calculating the affordability of your buy to let remortgage. The rent must cover the actual mortgage cost, but, the extra percentage lenders work-in to the calculation to act as a financial buffer can be accounted for by your own money. 

As an extra note of clarification on this, available disposable income is key – if you are struggling to make ends meet with your personal finances and do not have ‘spare’ income (income not being used to settle other bills) you will not be eligible for top-slicing.
 
The only other outcome available to you is to review the amount that can be raised for a remortgage and to make up the shortfall with funds from another source (e.g. savings, selling assets or shares, a pension pot etc).

Trust our experts to remortgage your buy to let property

In summary, getting the best possible buy to let remortgage deal relies on a number of key factors:

1. Access to many lenders and mortgage options to find the one deal that is best for you
2. Matching your needs and circumstances with lender terms
3. Aligning products to your priorities

When you work with our experts we will deliver all this and more, because we will look after you from first hello through to application, completion and beyond to your next renewal.

Get in touch today to get started.