Day one remortgages allow you to remortgage within six months, but why would a buy to let landlord use this property finance facility?
What is a "day one" remortgage?
A day-one remortgage, or a 'mortgage within six months', is when you remortgage a property within six months of legal ownership.
Why would you need to remortgage within six months?
Typically, people only consider remortgaging this early if they've inherited a property. However, there are several other situations where you may wish to remortgage a property within six months of ownership:
Release Equity Quickly
Whether it's your intention from the outset, sometimes you need to release equity from a property you've just purchased. It might be that you've found another property to add to your portfolio, and you need some of the cash locked in property one to form a deposit for property two. Alternatively, having purchased a property with more than a 25% deposit, you may now want to release some of that cash to make home improvements. If you have enough equity in the property, you might prefer this option to a bridging loan.
Bridging Finance Exit
There are two main reasons landlords may use a bridging loan to purchase a buy to let property. The first is when a property is not deemed in 'rentable condition' and needs some TLC before going onto the private rental market. In this situation, you won't be able to get a buy to let mortgage to secure the purchase, but once works are complete and the property is up to standard, you can refinance onto one to exit the bridging loan and start renting out the property, even within six months.
You may also consider using bridging to buy the property to speed up the initial purchase process. Once secured, you can then remortgage onto a buy to let mortgage with less time pressure. We found that many landlords utilised this finance method with all the time pressure around the stamp duty holiday deadlines. However, it's also helpful when purchasing property with many competing buyers, or when you just need it done!
Auction Finance Exit
Like bridging, purchasing property at auction requires quick turnarounds that often, conventional buy to let mortgage applications cannot meet. Once purchased, you can use a day-one remortgage to move onto a suitable arrangement to rent out the property.
Access a Better Mortgage Rate
Personal situations change all the time and rapidly. You may not have been able to access the most competitive rate available due to your circumstances at the time of purchase. Four months down the line, things have changed, and you can now get a lower interest rate and minimise your monthly repayments! Why wait when you could start saving now?
Why don't all buy to let lenders let you remortgage within six months?
The reason many buy to let lenders won't allow you to remortgage within six months stems from the 2008 financial crisis. Back then, you could get 100% residential mortgages, and 90% LTV buy to let mortgages. People would purchase new builds at a discounted price with a minimum (or no) deposit, only to remortgage at full market value once their names were on the deeds. Essentially, they'd have no money in the property, and all the risk, therefore, sat with the lender. As I'm sure you're aware, many of these properties fell into negative equity during the crash, so when repossessed by lenders, all they had were losses. As any seasoned mortgage broker or landlord will tell you, mortgage finance became much more regulated to prevent it from happening again.
How many buy to let lenders don't have a six-month rule?
There are now 15 buy-to-let lenders that will offer a remortgage within six months. Unsurprisingly, none of these are high street lenders, so you'll need an experienced mortgage broker, ideally with whole-of-market access, to source these rates.
If you're purchasing a property with bridging finance, we work with a lender that will start the remortgage process even before you complete, and your name is on the deeds. The lender underwrites the new mortgage and organises everything in advance, so you can move the refinance process on even faster once your name is on the deeds.
How is property value calculated for a day one remortgage?
The majority of lenders that offer day-one remortgages value the property based on how much you paid for it plus how much you've spent on it, or the open market value, whichever is lower. Unfortunately, this makes it hard for landlords to maximise their profits on their refurb to let properties.
Thankfully, some lenders now will revalue at open market value. As long as your required loan amount does not exceed your cost of purchase and refurbishment works, they're happy to do this. This means you can usually borrow more on the same property, which is a bonus!
If you think a day-one remortgage might be an option for you or would like to know more about how it could benefit you, do give us a call on 0345 345 6788 or submit an enquiry, and one of our expert brokers will be more than happy to talk you through the details and see what options there are for you.
Updated: July 2022.
20th July 2022