Day one remortgages allow you to remortgage within six months, but why would a buy to let landlord use this property finance facility? Experienced Consultant Mortgage Broker, Agata Rogozinska, explains.
What is a “day one” remortgage?
A day-one remortgage is when you remortgage a property within six months of legal ownership. Sometimes it’s referred to as a “mortgage within six months”, but they’re the same thing.
Why would you need to remortgage within six months?
While most people would only consider this when they’ve inherited a property, there are several other situations where you may wish to remortgage a property within six months of ownership, some of which may surprise you!
Release Equity Quickly
Whether 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 on 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, you can refinance onto one to exit the bridging loan and start renting out the property, even within six months.
The other reason you may consider using bridging to purchase and consequently need to remortgage in six months is to speed up the initial purchase process. Once secured, you can then remortgage onto a buy to let mortgage with less time pressure! We’ve found that many landlords have 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 turn-arounds 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 lenders repossessed these properties, all they had were losses. As any seasoned mortgage broker or landlord will tell you, mortgage finance became a lot more regulated after that to prevent it from happening again!
How many buy to let lenders don’t have a six-month rule?
There are now 14 buy to let lenders that offer remortgage within six months. Unsurprisingly, none of these are High Street lenders, so you’ll need an experienced mortgage broker to access 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 + how much you’ve spent on it, or the open market value, whichever is lower. Of course, this doesn’t maximise profits for those of you looking to refurb and let properties. I know this can be an incredible frustration to many landlords!
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, 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 me a call on 01732 471602 or email me email@example.com, and I’ll be more than happy to talk you through the details and see what options there are for you.