Remortgaging your buy to let properties may seem like an inconvenience only to be done when absolutely necessary. However, as specialist buy to let broker, Deepinder Bhangoo, explains, there are several reasons why you may consider remortgaging a property.
While there are many circumstances where you might need to remortgage a buy to let property, we're going to concentrate on the four most common, and arguably most useful, reasons. Ultimately, most people remortgage to save or access additional money; however, you may not have considered all of these options before.
1. Your fixed-rate term has or will soon expire
The most common reason for remortgaging; when a fixed mortgage rate term expires, you automatically roll onto the lender's standard variable rate (SVR). These vary from lender to lender but are almost always more expensive than the rate you fixed on. Consequently, your monthly repayments will likely increase, and you'll start accruing more interest than you were before. Furthermore, as a lot of lender SVRs track the Bank of England Base Rate (BBR), or sometimes LIBOR, your monthly repayments may not be the same amount each month, making it more challenging to manage your cashflow.
What can you do? The majority of lenders offer a 'loyalty' product to existing customers, which is likely to be cheaper than your outgoing rate. Called a 'product transfer', it's usually the most straightforward option as the lender is unlikely to complete a new financial assessment (unless they see need to). Product transfers can be arranged in a day or two and will automatically kick in when your existing fixed-term expires.
However, as with any renewal, we would always recommend shopping around for a more competitive deal before committing. Lenders change rates and criteria all the time, so you may find that you have a lot more choice than you did two, five or even ten years ago when you arranged your previous mortgage. Trying to compare the whole buy to let lender market can seem daunting, but you can get mortgage quotes on our website, and speak to our expert brokers who will be able to do the work for you!
If you like to be prepared, you can usually secure a new mortgage rate a couple of months before your existing one expires. If you're changing lender, you'll need to let your current lender know so that you don't roll onto their SVR.
2. Your property has increased in value, and you want to release equity
Depending on how long you've owned the property, it will have hopefully increased in value since you purchased it. If this is the case, you may be able to remortgage and release some of the equity to use a deposit for a further buy to let investment or to refurbish and make improvements to the property. Many of our clients do this to expand and/or increase the value of their buy to let portfolios.
What can you do? In this circumstance, the majority of investors end up using a new lender for the new mortgage, although not necessarily. It may be possible for your existing lender to offer a 'further advance' facility, which essentially allows you to take on additional borrowing from your lender at a different interest rate to that of your main mortgage. Whichever option you go for, the lender will need to complete a new assessment of your finances and re-value the property.
3. Your mortgage is coming to the end of the full term
All mortgages have a full term, which runs under any 'fixed terms' relating to the interest rate. The full term is the time in which the lender expects you to repay the total mortgage amount and is most commonly 20-25 years. Therefore, as you approach the end of this term, your lender will be looking to receive payment of the outstanding balance.
What can you do? Nowadays, the majority of lenders recognise that buy to let properties are usually an investment scheme and that the mortgage doesn't have to repaid by retirement age. We have access to lenders who will accept repayments from you until you're 85, and sometimes even older! Therefore, if you don't want to or can't repay the remaining outstanding balance by the end of your current term, we'll likely be able to help you remortgage onto a new term to extend it a little longer.
4. Transferring a property from personal name to limited company ownership
The term 'transferring' here is a little misleading, as this process is a full sale and purchase transaction in the eyes of lenders and HMRC (you can read more about the process here). While some lenders lend to both individuals and limited companies, there are often a few differences between how they underwrite the mortgages and calculate affordability. Therefore, you'll need a new limited company-specific mortgage for your company to 'purchase' the property. As this transaction can trigger capital gains and stamp duty tax charges, you must speak to a professional tax adviser before starting this process.
If one of the above options could help you, or if you'd like further information about what might be the best course of action for your investment plans, do not hesitate to contact me, Deepinder Bhangoo on 01732 471 661 or email me firstname.lastname@example.org
Update December 2020.