Remortgaging your buy-to-let property could save you money or provide you with a way to access equity. Taking some time to prepare before you apply to a lender may lead to you securing a deal that’s better for you. Read on to discover some of the steps you could take to prepare.
According to a report in FTAdviser, 4 in 10 residential landlords are due to renew their mortgage in 2024. If you’re among them, you could find that your outgoings will rise.
The survey found that 42% of landlords currently have a fixed-rate mortgage deal. As the Bank of England has increased the base interest rate over the last few years, some may pay a higher rate than expected when their current deal expires.
It’s not just buy-to-let owners with a mortgage deal expiring that could benefit from remortgaging either. Around 15% of landlords are currently paying their lender’s standard variable rate (SVR). If you’re paying an SVR, the rate could be higher than other comparable deals and it might not be the right option for you.
If you’re planning to remortgage, here are eight practical steps that could help you secure a competitive rate and a deal that suits your circumstances.
1. Decide which type of mortgage is right for you
One of the first useful steps you can take is to decide which type of mortgage is right for you. This could help you narrow your search.
Usually, buy-to-let mortgages are interest-only. As you would only pay the accrued interest each month, this option means your outgoings are lower than if you choose a repayment mortgage. However, when the deal expires, you’d still owe the amount you borrowed, so you may want to consider your long-term plan.
While less common, there are buy-to-let repayment mortgages available, where your payment would cover the accrued interest and a portion of the amount you borrowed. As a result, the outgoing will be higher.
A lender will consider how your mortgage repayments compare to the expected rental yield of the property. Typically, lenders will require the rental yield to be at least 125% of the mortgage payment, on an interest-only basis.
In addition, you may want to decide whether a fixed-, tracker-, or flexible-rate mortgage suits your needs.
With a fixed-rate deal, the interest rate you pay will be fixed for a defined period. This could help you budget effectively, as you know your mortgage payment won’t change, but you wouldn’t benefit if interest rates fell.
In contrast, with a tracker- or variable-rate mortgage, your repayments could change during the term. If the interest rate fell, so too would your repayment. However, you should consider how an interest rate increase could affect your outgoings as well.
2. Assess how much you want to borrow
Remortgaging your buy-to-let property could provide a good opportunity to assess how much you’ve borrowed.
You might simply want to remortgage for the same amount you initially borrowed, but you may also be able to increase or decrease it.
If you have the capital, you could pay off a portion of the amount you initially borrowed. This could reduce your mortgage outgoings and you might benefit financially over the long term.
Alternatively, depending on the value of the property and your financial circumstances, you might be able to release some of the property’s equity. Some landlords choose to do this to help them grow their property portfolio or reach other financial goals.
3. Check your credit report
Lenders use your credit report to assess how likely you are to default on your mortgage repayments. Generally, borrowers who are deemed low risk will benefit from a lower interest rate.
So, setting aside some time to review your credit report could be valuable. Look out for red flags that could concern a lender, such as missed payments, county court judgements, or recently increasing your credit.
There might be some steps you can take to improve your credit report and score – for example, reducing debt or removing incorrect information. Keep in mind that it can take several months for the changes to show on your report.
If your credit score is poor, it doesn’t mean you can’t remortgage – there are specialist lenders. If you’re worried about your ability to secure a mortgage, we could help.
4. Measure how the cost of letting a property has increased
It’s not just mortgage costs that are rising for landlords. Other outgoings, such as estate agent fees or insurance, may have increased over the last couple of years too. Indeed, according to the FTAdviser report, 30% of landlords expect to increase rent to deal with higher monthly costs.
Reviewing the overall cost of letting out a property could help you assess how the payments of a new mortgage deal will affect your finances.
5. Review your property’s value
How has the value of your property changed since you last took out a new mortgage deal? According to Land Registry data, in the five years to January 2024, the average property price has increased by more than £50,000.
One of the areas a lender will consider when reviewing your application is the value of the property compared to the amount you want to borrow, known as the “loan-to-value” (LTV). Moving into a lower LTV bracket often means you benefit from a lower interest rate, as you pose less of a risk to the lender.
So, if the value of your property has increased, it could help reduce the amount of interest you pay on your mortgage.
6. Calculate the cost of remortgaging
It’s important to consider the cost of remortgaging. You might pay an arrangement fee for your mortgage or, if your current deal hasn’t expired yet, an early repayment charge.
In addition, for buy-to-let properties, some of the fees will be similar to when you purchased the property. For instance, a lender will usually want a solicitor to carry out due diligence. As a result, you might want to factor in legal costs when assessing if remortgaging is right for you.
7. Prepare the paperwork for your mortgage application
Your chosen lender will review your circumstances when assessing your application. Typically, that means you’ll need to prepare paperwork.
You’ll often need to provide evidence of your income and bank statements covering the last three months. The rental yield of the property also plays an important role in reviewing your application, so providing evidence of this and information about the current tenancy could also be useful.
Getting your paperwork in order now may make applying for a new mortgage deal smoother and mean you have a better understanding of your situation when comparing options.
8. Contact a mortgage broker
Working with a mortgage broker could prove invaluable. There are many mortgage lenders to choose from, and identifying which one is right for you can be difficult.
As mortgage professionals, we can search the market on your behalf with your circumstances in mind. Finding the right deal for you could reduce the amount of interest you pay or provide greater flexibility, such as the option to overpay without facing a charge.
In addition, we can review your application to reduce the risk of mistakes and offer support throughout the application process.
If you’d like to talk to one of our team about how we could help you remortgage your buy-to-let property, please get in touch.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your property may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
The Financial Conduct Authority does not regulate buy-to-let mortgages.
