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Home » Self-Employed Mortgages » Buy to Let Remortgage
Buy to Let Remortgage
Steven Hargreaves talks us through remortgaging on a Buy to Let property.
Can you remortgage on a Buy to Let, and how does it work?
It’s exactly like remortgaging on a residential property. We’ll look at the different rates the lenders are offering. The information required relates to the tenancy agreement, rental income etc.
We’re still basing how much you can borrow on the rental income and that has probably increased significantly over the last three or four years. Five years ago, an average rent might be £800 – that would now be £900 or £1,000. We collect all that information and look at which lenders will lend and which interest rates are the most beneficial.
The majority of clients tend to look for medium to long-term fixed rates of five years or thereabouts, just so you don’t have to review it so often. You can forget about it for five years, as Buy to Let is a long term investment.
The benefits of remortgaging are immense at the moment. I have a few Buy to Lets myself and I’m coming off interest rates of just under 3% [podcast recorded in September 2024]. If I went onto the standard variable rate, my rate increases to 7.5% and 8%. That’s an enormous jump.
So the benefits of remortgaging and securing a new product have probably never been as important. Interest rates a few years ago were so cheap, and in comparison, the standard variable rates now are very expensive.
u can still find another reasonably attractive rate, although not 2% or 3% unfortunately. I just secured myself a rate of 4.5% on a Buy to Let mortgage, but my previous rate was 2.88%. 4.5% is still brilliant in comparison to going up to 7% or 8%.
Why remortgage your Buy to Let?
The main reason is that a deal’s coming to an end. If you’ve taken a two-year, a three-year or a five-year fixed rate, when it finishes you want to avoid going onto the standard variable rate. You would therefore look at options open to you with other lenders, and obviously what your existing lender would offer for you to stay with them.
There are other reasons. For example, a recent client wanted to raise some money with a remortgage, to be a deposit for his next Buy to Let.
How do I remortgage a Buy to Let? What’s the process?
It doesn’t differ significantly. In the majority of cases, the lender would require a valuation of the property to establish that the value was correct, and that the rental income we declare is achievable.
Some lenders will require income verification. Some require verification that you’re either a basic rate or higher rate taxpayer. Some want full income details, but not many.
We would work out which lender was the cheapest and most suitable and submit an application. We’d provide the documents they require, whether that’s pay slips, P60, tax information or the assured shorthold tenancy agreement.
If everything is acceptable, the lender would issue a mortgage offer. With a lot of remortgages, they’re offering free legal fees; so the solicitor would be paid for by the new lender, which is handy. Then it would just be the normal process as if it was a residential mortgage.
Can I be refused a Buy to Let remortgage?
Yes, it’s still very similar to a normal residential mortgage. It could happen if there is any adverse credit, or they didn’t think the property was at the value stated. We’re also coming into EPC times, where the energy efficiency of the property is important.
The range is A, B, C, D, E, F or G, with A being the best and G the worst. A few years ago you could get a mortgage with any EPC rating. These days, lenders want an energy efficiency that’s quite attractive.
If your property is rated G, you would struggle finding a lender for a Buy to Let remortgage. You would have to do some renovations to the property, such as adding insulation, LED lighting or a better boiler. So yes, there are many reasons that you could be refused.
How long does it take to remortgage a Buy to Let?
A lot depends on how quickly you can supply the documentation. Getting everything ready is so important. If you have all the documents to hand, we would normally have a mortgage application approved within a week.
If you’ve got a valuer that needs to assess the property, they may need to make arrangements with the tenant. Ordinarily, all things being equal and tenants being available, they would issue a mortgage offer within a week or so.
Then it’s down to the solicitor to move that on as quickly as they can. It would normally be done within about six weeks.
What costs are involved with a remortgage? Do you have to pay stamp duty when remortgaging a Buy to Let?
In a lot of cases, the costs are negligible. With a remortgage on a personally owned Buy to Let, the new lender would usually offer you free solicitors and a free valuation, which is fantastic. Effectively, there’s nothing to pay to the new lender.
We’d look at what your existing lender would offer and also what a new lender would do to entice you away. In many cases, it’s free valuations and free solicitors’ fees.
The costs can be a little bit more if it’s a Limited company Buy to Let, but I think we’ll probably cover that probably on a separate podcast.
As far as stamp duty is concerned, I’m certainly no tax expert, but if I own a property and remortgage it, there is no stamp duty to pay. If it’s jointly owned and we remortgage that property, there is no stamp duty to pay. But if I own that property and you’re coming onto the ownership deeds, there may be stamp duty to pay.
You would normally speak to an accountant about that because effectively you’re buying into this property. Therefore, there would be an element of a second tier stamp duty on the share you’re buying, whether that’s 50% or otherwise. On a like-for-like remortgage where the ownership stays the same, there’s no stamp duty.
What are the benefits of remortgaging a Buy to Let property?
Saving money. You’ve got to avoid being transferred onto an expensive standard variable rate. For Buy to Let mortgages the rates can be very high. Most landlords would avoid them like the plague.
There are lots of options, whether it’s new terms with your existing lender, a remortgage to a new lender or embedded terms in your existing deal. A lot of my landlords are coming to me as early as possible to secure new deals – as much as six months beforehand. We’ve then got something ready to move on to, to avoid that standard variable rate.
How can a mortgage broker help here?
It’s all down to choice. If you’ve got a lot of lenders offering completely different rates depending on the equity in the property/Loan to Value, two year fixed rates, five year fixed rates etc., it can be complicated. A broker will guide you through that.
We will talk you through what rates are available, how that fits in with your circumstances and what you need to provide.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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