A buy to let remortgage should be a simple process, but many landlords can get it wrong. A remortgage is where you replace your current mortgage with a new one. A buy to let remortgage is no different. The crucial part is securing the best possible mortgage deal.
Remortgaging is typically carried out to either withdraw equity in a property or for switching to a better rate.
There could be other reasons why a landlord would want to remortgage, the reasons could be endless! It really does depend on the individual. On occasion, remortgaging a buy to let property may not be advised, so let’s read on.
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Reasons to remortgage a buy to let property
One of the main reasons to remortgage a buy to let is to get a better mortgage rate. After all, buy to let is an investment to generate income. Buy to let mortgages are usually taken out on an interest-only basis, so monthly mortgage payments are minimised to maximise profit.
Once your initial mortgage term expires, interest-only mortgages usually revert to an SVR (Standard Variable Rate). SVR rates are usually a lot higher than other rates available. Before your initial mortgage term expires, you can look to remortgage your buy to let, so that you can continue generating as much profit as possible.
Reducing your mortgage rate down as much as possible can generate thousands of pounds in additional profit, so it may well be something to consider.
See the example below (based on a £100k interest-only mortgage on a 5-year term):
SVR rate: 5% fixed rate = £417 per month (£5004 per year)
Rate after remortgage: 3% fixed rate with £600 fees to switch = £251 per month (£3012 per year)
As you can see from the above example, even though the remortgage has some associated costs, it will still generate an extra £1992 a year!
Withdrawing equity from buy to let property
A buy to let remortgage can also be used to withdraw equity in a property. The equity withdrawn can then be used to purchase another property, or used for renovations.
The reasons for releasing equity really depends on the individual. This is why the reasons for remortgaging can be so varied.
Learn more: How to remortgage to release equity.
Changing the term of your current mortgage
You may be unhappy with your current mortgage term and are looking to change it. This is quite common as you may want a longer/shorter term or want to change from repayment to interest-only or vice versa.
Remortgaging can be very beneficial if it makes financial sense. Property owners that have run into financial difficulty, can also use a remortgage to pay off debt.
There are situations where remortgaging may not be a good idea. You may already be on a great rate, or the buy to let property may be in negative equity. In such situations, it could even be impossible to remortgage.
Which buy to let deals should you choose?
Landlords and residential borrowers are typically quick to select mortgages with the lowest rates. Remember, a low mortgage rate is only part of the mortgage. There could be other fees and terms attached to the mortgage making it expensive over the entire term. A mortgage with a slightly higher rate, but no fees could be a cheaper option overall.
Buy to let remortgage rates explained
Always consider the overall cost of a mortgage and if you’re not sure, utilise the expertise of a mortgage advisor. Low rate mortgages often have high fees attached, so be careful before making any decisions. In comparison, even if an attractive rate has high fees, it may still be cheaper overall.
See the example below (based on a £100k interest-only mortgage on a 2-year term):
Mortgage A: 2.8% fixed rate – £2500 fees
Mortgage B: 3% fixed rate – £1000 fees
Mortgage C: 3.5% fixed rate – £0 fees
Mortgage A: Monthly cost = £239
Mortgage B: Monthly cost = £252
Mortgage C: Monthly cost = £292
Based on the above example, even though ‘Mortgage A’ costs £2500 in fees, it’s still £53 cheaper than the mortgage with no fees at all. When calculated annually, that’s a saving of £636. In some areas of the UK, that’s the equivalent of one month’s rent.
When remortgaging a buy to let, it’s also important to consider the term of the mortgage in addition to whether or not the mortgage has a fixed or tracker rate. You may want security in the mortgage. If so, you can choose a longer fixed term as opposed to a lower variable rate for a shorter term. This is to avoid being caught out by increases in the Bank of England base rate.
Be sure to check other charges and fees, such as early redemption penalties. You can be penalised if a property is sold or remortgaged before the term expires. In cases such as these, you may benefit from a secured loan on your buy to let instead of a remortgage.
Buy to let remortgage specialists
Utilising the experience and expertise of a broker could save you money and secure you a great mortgage. Our advisors specialise in buy to let mortgages and are whole of market brokers, meaning you can access every lender you qualify for.
To make an enquiry or ask our experts a question, make an enquiry below.