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What is a buy-to-let remortgage?
A buy-to-let remortgage is a loan that helps cover the cost of buying a rental property that you can apply for when your existing mortgage deal ends.
When you switch to a new mortgage deal with a different lender, this is known as a remortgage.
When should you remortgage a buy-to-let?
You should normally remortgage a buy-to-let property when the introductory period of your current buy-to-let mortgage deal ends.
That's because you'll be switched to your lender's standard variable rate (SVR), which is usually higher than other fixed and variable deals available.
If you want to switch before your current deal ends, to take advantage of better rates for example, then you may face early repayment charges (ERCs) which can amount to thousands of pounds. So, make sure you're prepared to pay these if you want to switch early.
However, if your current deal is due to end within six months, you can lock in a new rate now and switch when your deal finishes. This means you avoid paying any ERCs.
Plus, if rates drop before your new deal begins, you can switch again to a more favourable rate.
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Do you need a deposit for a buy-to-let remortgage?
You don't need to save up a separate deposit for a buy-to-let remortgage provided you have enough equity in your property to qualify you for a deal. The equity is the amount of the property you own outright. Use our home equity calculator to work out how much you have on your property.
For example, if you have 25% equity in your property, you will be offered a 75% loan-to-value (LTV) remortgage deal.
LTV is the ratio of the loan you've borrowed compared to the value of the property or price (whichever is lower). Better rates are usually offered for lower LTV deals as these are seen as less risky by lenders.
Buy-to-let mortgages are typically taken out on an interest-only basis. This is different to residential mortgages which are most often taken out on a repayment basis.
If you're on an interest-only buy-to-let mortgage, you won't have built up any additional equity in the property so you'll remortgage onto the same LTV ratio as before.
Although you could put down a larger deposit by adding money from savings to get a higher LTV deal (and normally better rates).
You may also be able to remortgage onto a higher LTV deal in order to release equity.
Accessing equity by remortgaging
Some landlords remortgage buy-to-let properties to release equity, often to fund another purchase or improve a rental home.
This typically involves moving to a higher LTV deal, borrowing more, and withdrawing some equity. If you own multiple properties, a portfolio mortgage could consolidate them under one monthly payment, allowing equity release across the portfolio.
However, releasing equity increases debt, potentially raising monthly repayments and interest rates.
That's why it's always a good idea to seek expert advice from a mortgage broker before releasing equity from a property.
Selling your buy-to-let to access equity
Selling your buy-to-let property is another way to access equity, but you'll need to repay the mortgage first. The remaining funds can be used for other purposes.
Keep in mind additional costs like solicitor fees, early repayment charges (ERCs), and capital gains tax (CGT).
CGT applies to profits made since purchase and is charged at 28% for higher-rate taxpayers or 18% for basic-rate taxpayers. From April, the CGT allowance will drop from £12,300 to £6,000, reducing tax-free profits.
How do interest rates work when remortgaging a buy to let property?
The interest rate on your buy-to-let remortgage will determine how much your monthly repayment are.
That's why it usually a good idea to try and find the best buy-to-let mortgage rate possible when you're switching deal.
However, it's also worth bearing in mind the additional fees you have to pay.
In some cases a deal may have a low initial rate, but the fees involved actually make it more expensive overall than a deal with a higher initial rate but lower fees.
What are the fees you pay when remortgaging a buy to let property?
There are some additional fees to consider when remortgaging your buy-to-let.
Arrangement fees
The main fee lenders charge is the arrangement fee, also called a product, booking, or application fee. This can range from a few hundred pounds to 1% of the loan amount, so check it carefully when choosing a deal.
Valuation fees
Many remortgage deals include free property valuations, but if not, costs can range from a few hundred pounds to over £1,000, depending on the property's value.
Legal fees
Remortgaging involves legal and conveyancing costs, but some deals include free basic legal packages.
It's worth double checking this before settling on a deal, so that you can budget appropriately.
Early repayment fees
If you choose to leave your current deal early when you remortgage, you may also face ERCs or exit charges.
These can cost thousands of pounds so make sure to factor these in when budgeting for your remortgage.
Buy-to-let remortgage FAQs
Should I remortgage to a buy to let property with my bank?
If you’re considering remortgaging your residential home as a buy-to-let property, this may be possible depending on your situation. You can start by speaking with your current lender about switching to a buy-to-let mortgage.
Alternatively, consulting a mortgage broker, like our partner Mojo Mortgages, could be beneficial, as they can explore the market acorss 70+ lenders to potentially secure a better deal from another provider, saving you money.
What happens at the end of my interest-only buy-to-let mortgage?
At the end of your interest-only buy-to-let mortgage, you need to repay the money you borrowed from your mortgage lender.
You can do this by selling the property. Or, if you have built savings up in another way (through an ISA or saving rental profit), you could pay it off this way.
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