A Guide to Buy-to-Let Remortgages

Provided you have a good deposit that covers most lenders’ requirements of between 25-50% of the property’s value, accessing a buy-to-let mortgage is an excellent way to fund your initial purchase. 

Once you have bought the property, however, you shouldn't forget about your mortgage because you may be eligible to remortgage. Of the hundreds of thousands of buy-to-let mortgages that are taken out in the UK each year, more than half are classed as remortgages. 

What is buy-to-let remortgaging? 

Refinancing, or remortgaging, is switching from one loan to another – with the same lender or a new one. The lender purchases your existing debt and moves you to another product or changes the terms/rates of your loan. 

For buy-to-let landlords, remortgaging can bring many benefits if you fulfil the criteria. They allow you to switch loan product types, extend loan terms or reduce interest rates. In some cases, they also allow you to consolidate multiple debts under a single new mortgage, though this is usually outside of the standard buy-to-let agreement. 

Buy-to-let mortgages are often interest-only, which means you do not repay the capital amount of your loan and therefore don’t end up owning the property (unless you repay it in full at the end of your loan agreement). As you don’t repay the capital amount, you build less equity than a standard mortgage agreement. 

Why remortgage your buy-to-let?

Many different situations make remortgaging beneficial, including: 

• Remortgaging buy-to-lets when deal periods end

Most mortgage agreements, including buy-to-lets and commercial mortgages, have a deal of some kind that lasts for the first period of the mortgage (often two years). This deal is typically a fixed interest rate or a limited variable one. When this period ends, you may be switched to the standard rate, which depending on the market, can increase repayments significantly. 

Remortgaging as you near the end of your deal period is commonplace, as it allows you to switch products and often to access another lender’s preferential introductory rates. You’ll still have to pay any exit fees and new lender fees, but if the difference in repayments is significant, it will be worth it. 

• Remortgaging to save money 

Loan products, regardless of whether they’re mortgages or business loans, are built on a combination of repayment terms and interest rates. In buy-to-let mortgages, the amount you borrow is offered as a percentage against the property in an LTV (loan to value). Depending on how long this mortgage lasts and what interest rate you’re offered, you may be faced with steep repayments for a short period or more manageable ones across a longer term. 

As your position changes, you may wish to switch agreements to either repay the loan faster by reducing the term length or to extend the loan for a longer period and access smaller interest rates and subsequent repayments. 

• Remortgaging to realise increased value

Buy-to-let landlords typically lend based on either rental income or the overall value of the property. If you have done work to improve your property’s value or tenancy rates and fees are rising in your area, you can remortgage to negotiate a loan based on your up-to-date value rather than whatever historic position you were in when you first took on your buy-to-let.  

• Remortgaging to switch loan type

In some cases, other forms of mortgage may be better than a buy-to-let. A commercial mortgage covering mixed use, for example, may become more applicable if you were to convert some of your property into an office space. These products are usually similar to buy-to-lets but have specific terms or rates that suit your use of the building, so they’re worth exploring if you branch out from solely renting the property out to tenants. 

In some cases, you may want to move into the property you currently let. Under standard buy-to-let mortgage conditions, you or your immediate family can’t live in the property, so you’ll need to switch to a residential mortgage or a regulated buy-to-let. 
 

• Remortgaging to switch rate type

Similarly, you can also switch between variable or fixed rates depending on the interest rates offered and how you want to plan out your letting journey. Fixed rates offer longer dependability and visibility over your repayment amounts but may be more expensive or harder to secure. Variable mortgages are more common but can spike if interest rates change. 
 

• Remortgaging to build equity 

In an interest-only mortgage, you don’t build ownership of the property. As your situation changes, you may wish to own more, and therefore you’ll need to remortgage to a capital repayment mortgage rather than interest-only. This will increase the overall price of your repayments because you’re not just paying interest but repaying capital – so you need to factor in the cost of any capital repayment agreement based on your existing rental income to ascertain if it’s worth it for you. 

• Remortgaging to consolidate debt

Debt consolidation is often considered a separate field but is part of the refinancing umbrella. It is the process by which a lender ‘purchases’ your existing debts from others and consolidates them into a single repayment. If you’ve been successful as a buy-to-let landlord and have multiple properties with strong rental yield, you may be able to access a loan like this from a lender willing to offer a new portfolio mortgage that allows you to repay across your whole portfolio in one repayment. 

Refinancing other investment properties

Investment property as a term applies to far more than just buy-to-let mortgages rented to tenants. Many landlords invest in commercial property, office space, car parks and other types of property – very few of which will be offered under a buy-to-let agreement. 

If you’re planning to either expand your existing portfolio from buy-to-lets to mixed commercial property or you’re looking to get started with buy-to-let mortgages and have other investment properties, you may be better off remortgaging your existing agreements rather than starting from scratch. 

This is a tricky balance and one where you’d benefit from independent advice. Here at Rangewell, our team can help. We’ll discuss your existing portfolio and your plans for the future before helping identify the right lenders and products to support you. 

For more information on investment property refinancing, read our specific guide by clicking here. 

Reasons you may be refused a buy-to-let remortgage

Some lenders will refuse buy-to-let applicants, even if you already have an existing buy-to-let agreement. Reasons vary lender-to-lender, but many shared factors crop up time and time again. These are: 

• Problems with the property such as flat roofing, Japanese Knotweed, damage etc. Anything that makes the lender deem the property risky and could lead to rejection. Don’t try and hide this, as lenders will usually carry out their own checks. 
• Having too many buy-to-lets or being too leveraged as a portfolio landlord can lead to applications being rejected. 
• Your rental income may not be sufficient to meet the lender’s criteria. Lenders usually need to see rental income that is 125% or more of the repayment amount. 
• If your property loses value you may not be able to remortgage or be offered bad terms that make it a poor decision. 
• Location also plays a factor. Properties in busy city centre areas near nightlife may not be eligible for buy-to-let landlords because of the perceived risk from partygoers. 

How to remortgage a buy-to-let

To get started with a remortgage, you must first assess your current position in terms of property value and your own personal history as a landlord. If you’ve been successful for a number of years, any remortgaging agreement taken out now should reflect that in better rates or terms because you’ll be deemed less risky than you were when you first took out your mortgages. 

You’ll need to know how much you need to borrow as an LTV. If, for example, you have a £500,000 property and you want to borrow £250,000 you’ll have an LTV of 50%. The lower your percentage, the better rates you can access – so the less you want to borrow as a percentage of your property’s value, the better. 

In all buy-to-let cases, lenders are looking for the rental value of the property above anything else. If the market has improved your rental yield or you’ve upgraded the property so you can charge higher rent, you’ll have a better chance at negotiating superior offers from lenders. 

You need to take your LTV and history to a lender who can then offer you a specific buy-to-let remortgaging agreement. It pays to shop around because there are many different lenders from both high street and challenger banks as well as other third-party lenders. A broker can help you make sense of the market, make the right decisions and negotiate the best deals. 

Buy to let remortgage considerations

Now you know what remortgaging is, how to do it and how it can benefit you. To get here, you’ve read a lot of information all at once, so let’s take a moment to recap. Here are some quick considerations to take into account before pursuing a remortgaging agreement: 

• Remortgaging as a process can take time, so consider beginning any remortgage arrangement as early as six months before the end of your current deal period.
• You may have to pay fees to exit your existing mortgage or to take on a new one, so work those fees into any financial projections you have. 
• Your offer will be based on your property’s rental yield and as such, any work to improve the property’s rental income can make the lender more generous thanks to the reduced risk. 
• You can remortgage in many different ways, including from buy-to-let mortgages to other types of loans. Choosing which product you want to switch to will depend on your vision for your property or portfolio. 
• If you have multiple loans, you can often use remortaging to consolidate debts into a single repayment that may even be cheaper than your existing one. 
• You can be refused a buy-to-let mortgage for a number of reasons. These include short lease periods, risky properties with structural damage or flat roofs, location and even having too much leverage as a portfolio landlord. 

Refinance your buy-to-let with Rangewell 

Making the most of your buy-to-let agreement is a case of constantly balancing your property’s value against the market and checking with lenders to ensure you have a firm deal. There are so many competing mortgage products out there that landlords are losing money if they’re not regularly considering refinancing. 

At Rangewell, we help landlords with a single property through those with vast portfolios manage their remortgaging process. We’ll help advise you on the entire journey, identify the best lenders and negotiate the deal on your behalf. Why take risks with your investment when you can enjoy expert-led advice and guidance at no cost to you? Click the banner below to get started.