What is a buy-to-let mortgage?
A buy to let mortgage is used for investment purposes where a property is purchased with the intention of renting it out. A buy to let remortgage is similar to a regular remortgage where you will face a fixed interest rate for 2-5 year, after which it will be increased by the lender. The best time to look for a remortgage is a few months before the original mortagage is changed to a higher rate. Here you should begin to search for a new lender who will both take on your mortgage whilst offering you a better rate.
Why should I get a buy to let remortgage?
A buy to let remortgage is commonly taken out to get the best rates of interest available in the market. The general consensus to find the best remortgage is the one that has the most reasonable and lower interest rates. In order for the investment of a buy to let property to stay profitable, a mortgage deal with low rates is key.
If the property has seen price growth and also has a lot of equity, then a remortgage is often beneficial as you could use the money for renovations or to increase your portfolio by buying more investment properties.
Remortgaging can also help you to change the type of deal you are tied to. You could change your variable rate to a fixed rate.
Things to note before getting a remortgage for a property
Remortgaging if done correctly, can save you lots of money but this can only happen if you thoroughly research all the different options out there; if not you could end up losing money! Make sure you do your homework before committing yourself to a deal because by then there is no going back.
However, if you are bound to an agreement currently with a lender you need to go through all the calculations of profit and loss for other available options before changing your agreement. Also, just because interest rates are low, do not forget to take into account the costs for all sorts of fees (products fees, valuation fees, legal fees etc).
How can I get the best buy to let remortgage?
When looking around for a buy to let remortgage you will see many options, but you need to dig deeper and see which deals you are actually eligible for. A few important points to pay attention to for a buy to let remortgage are:
- Credit history
- Yearly income
- Size of the deposit
- Amount of equity owned.
What things influence the interest rates for buy to let remortgages in the UK?
Rates of remortgages coincide with the economic climate and its stability. Events happen on a regular basis which will affect the economy so the rates could be low but then rise suddenly. Before entering a remortgage deal you need to think about all the existing costs that come with a buy to let property. Some of these costs include accidental damages, wear and tear, agent fees and income tax. These costs need to be taken into consideration when going for a remortgage.
What Fees will I come across?
As we have mentioned before, just because the lender is offering a low interest rate package, it is not necessarily going to save you money. The fees you will face could counter the money saved by paying lower interest, so you should look at the charges when leaving a deal and entering a new one.
There could be some fees that are not clear or visible to you, so the best thing to do is to talk to someone with extensive knowledge in the mortgage market like a financial advisor who can guide you through any troubles you come across.
As a result, you will be able to make a well-informed decision that is beneficial to you.
Different types of rates for a buy to let remortgage
- Stepped – the initial rate will increase annually over the period of your remortgage.
- Fixed – the rate you sign for is the one you pay for a particular period, usually 2 or 5 years. Your repayments will remain constant regardless of any changes in the economy.
- Tracker – you will pay a fixed rate set by the lender but also the rate in which the Bank of England has set. The BoE’s rate is variable.
- Variable – the rate you will pay is subject to change, due to the rates set out by the Bank of England.
- Discounted – here you will pay a discounted rate than the variable rate, but this discounted rate is set by the lender and they can change it whenever they want to and by how much.
What Criteria should I meet when looking for a buy to let remortgage?
The circumstances for receiving a buy-to-let remortgage are the same as taking out a mortgage for a property that you will rent out. The only difference is the different criteria that lenders set.
- Age is a big factor when looking to get a remortgage for a property that you want to rent out. You should be between 21 to 75 years old, but in a few cases the lenders will give out these mortgages to people who are are 18 years old.
- Your equity in the property also influences your chances of getting a remortgage. The typical percentage that most lenders go by is 25% but you can find some lenders that will accept 15% equity.
- Your personal income is also going to determine your eligibility for a buy to let remortgage. The minimum yearly income that lenders will accept is £25,000 but if you can prove sufficient rental income then you do not need to prove personal income. Lenders allow your personal income to be your rental income because they will see you as a self-employed landlord.
- The type of property that you want to remortgage has a big impact on whether or not you will be accepted for a buy to let remortgage. Most lenders do not accept properties that are not standard construction. The best way to find out the specifics is to contact the lender for any information you need. Each lender has their own idea of ‘standard construction’ so you will need to contact all the lenders you are interested in.
- If you are an experienced landlord then it is more likely that you will find a good lender who will offer you a better rate. This is because an experienced landlord is seen as less risky and so will be offered more attractive rates. If you are a comparatively new landlord, ie with less than 5 years’ of experience, finding a lender who will give you lower interest rates will be a little trickier.
- In all cases of a buy to let remortgage the monthly rental income will always be considered. Lenders use this to calculate the amount they are willing to loan out.
The process of getting a buy to let remortgage is more complicated than it seems. With everything the proper research and running of the numbers need to be done and only you can do this. The hard work and effort you put in will be worthwhile in the future as you will be saving money and improving your financial situation.
To optimize your outcomes and receiving help when needed, using the services of a financial advisor is always recommended as they are knowledgeable and have experience.