Rate-busting buy to let remortgage

Summary of the case

• Remortgage of buy to let property
• Like-for-like borrowing
• Low value terrace house
• Looking to beat high mortgage interest rate
• Switching from capital repayment to interest only

What we achieved for the client

• An effective reduction in monthly interest of nearly £300
• Completion achieved 2 months and 1 day after first conversation with us
• Lending on property value of just £80,000

The challenges of the case

The objective of this client was to get out of a high mortgage interest rate, despite being within the deal period of a mortgage secured just the year before.

The property was this client’s first. The property typified a standard buy to let, it was a two bedroomed terrace house and sat at the low end of the market, with a value when we came to remortgage it of just £80,000.

The client had invested in the property in sole name and not through a limited company.

We were familiar with the lender the client was with, who we know to have rates that are typically 3-4% higher than the average buy to let mortgage, as they operate within a specific lending niche.

It was clear to us that the profile of the client and their property did not warrant such specialist borrowing and that we could achieve a much lower rate.

The existing mortgage was being paid on an interest-only basis, meaning that the client would not own the property at the end of the term. Monthly payments were around £400.

The objective of the client was to change to capital repayments, so that they would be mortgage-free at the end of the term.

Client changed to capital repayments - how does this differ to interest only?

There are a number of factors at play when deciding whether to go down the interest-only or capital repayment route.

The fundamental difference, as mentioned above, is if you choose interest-only you will not own the property at the end of the term of the mortgage. You are simply paying the lender a monthly fee for them loaning you the money.

So why go interest-only? The significant benefit of interest-only buy to let is that, where everything else about a deal is the same, interest-only payments are typically a lot lower than capital repayments.

Take the client case above. Had interest-only payments been the client’s choice, the monthly payment would have been around £100. As the client wanted to pay off the capital, the actual monthly payment was around £500.

When you have no need to ever live in your rental property, you are just using your savings to generate an income from it, receiving more of your rental income than you pay to cover your mortgage payment may be a very favourable option.

For example, if the client were charging £800 per month in rent, with the capital repayment on the mortgage of £500, the outstanding coming to the client as profit each month is £300. If the client opted for interest-only payments, this amount would increase to £700.

If the client held that income in savings, the pot of money has the potential to grow faster than on capital repayments (based on the fact that more money is coming in each month). This could, in turn, lead to the generation of enough for another property deposit sooner and the pattern can be repeated.

Fast completion and an effective cost-saving

Not only did we remortgage the client away from a high interest rate, had they taken interest-only payments we would have effectively reduced their mortgage costs by around £300 per month.

As it was, for only £100 more than they were paying, the client is now paying off the capital borrowed to enable them to be mortgage free at the end of the mortgage term.

What’s more, we completed the deal exactly 2 months and 1 day after our very first conversation with the client.

If you would like to check that the mortgage deal you are on represents the best value you can achieve, or you want to remortgage to guard against rising interest rates, call our team today or submit your details and we’ll call you back.