You can use a remortgage deal to lower your costs on a buy to let property, just as you can by switching the mortgage on your home. When you switch to a new mortgage on a buy to let property, it’s known as a buy to let remortgage deal.
Buy to let remortgage deals, sometimes known as BTL remortgage deals, are home loans designed for people who want to switch to a new mortgage deal on a property they rent out. As with all buy to let mortgages, they generally have slightly higher interest rates than the standard residential mortgages you can take out on a property you live in. The criteria you have to meet to be approved for a buy to let remortgage is also likely to be stricter than on a standard home loan.
For example, most buy to let mortgage lenders require you to own at least 25% of a property to take you on as a customer. The rent you can realistically expect to receive must also be greater than the amount you will have to pay each month in mortgage repayments.
You can generally remortgage a buy to let property at any time, as long as you meet the lender’s criteria in terms of your financial situation, your rental income, and the deposit you can provide. However, you may have to pay early repayment charges, known as ERCs, to exit your existing mortgage deal.
If this is the case, it’s important to add up the cost of switching - including the ERCs you’ll have to pay plus any charges involved in taking out a buy to let remortgage deal, such as arrangement and legal fees - and work out whether you will save money overall. Other reasons you may find it difficult or expensive to remortgage a buy to let property include:
You have a low credit score
Your financial situation has changed for the worse since you bought the property (for example because you have taken on a lot more debt or lost your job)
The value of the property has gone down
Buy to let landlords usually remortgage to save money by switching to a new deal with a lower interest rate. However, if you’re already on a buy to let mortgage, it’s only usually worth remortgaging once you can pay off your existing buy to let mortgage without incurring early repayment penalties.
The other main reason people remortgage on to a buy to let deal is because they decide to start renting out their home. Standard mortgages are designed for your main residence. So if you start renting out your former home, you will usually find you have to switch to a buy to let mortgage deal.
This may mean paying a higher interest rate, as well as the fees related to changing your mortgage. But failing to do so will probably mean breaking the terms of your mortgage deal, and could result in hefty fees, or your mortgage being withdrawn.
The remortgage process for a buy to let property is very similar to remortgaging your home and can usually be completed within four to eight weeks. The first step is to find a suitable remortgage deal for your buy to let property (see below for tips on how to do this). Once you have found the buy to let remortgage you want, you can then contact the lender to make your application.
As with a standard mortgage application, you will generally need a solicitor or conveyancer to manage the legal side, while your new mortgage lender will almost certainly want to carry out a valuation survey on the property. You’ll also have to provide details of the rental return you can get (or have been getting), as well as your own finances.
As mentioned above, buy to let mortgage rates are usually higher than those available on standard mortgages. This is because lenders believe there is a greater risk of you being unable to meet the repayments, for example because you are unable to rent out the property for some reason.
At the time of writing, the best five year fixed rate remortgage deals for buy to let properties are hovering around 1.8%, while those on standard mortgages are closer to 1.3%.
However, the rate you can get will depend on a number of factors, including the type of mortgage you choose (fixed rate, variable rate etc.), the size of the deposit you have, and your credit score. Consequently, a buy to let owner with an unblemished credit score and a large deposit may well find a cheaper mortgage than a homeowner looking for a remortgage deal with a lower credit score and a small deposit.
You should usually be able to save money by remortgaging a buy to let property if one or more of the following statements apply:
You have come to the end of the initial rate period on your existing buy to let mortgage
Interest rates have gone down
You’ve built up enough equity to offer the lender a larger deposit than when you bought the property
You probably won’t save money if you’re switching from a residential mortgage to a buy to let mortgage because you want to rent out your former home. But not doing so means committing mortgage fraud, and potentially facing a lot of stress and expense in the future - so it’s still the right move in the long term.
Either way, the best buy to let remortgage deal for you will depend on:
How much equity you have built up in the property (or how much you’re prepared to add to it to boost your deposit)
How long you intend to keep the property (say you plan to sell it on in five years, choose a deal with no early repayment charges after that point)
Whether you want to make payments towards the initial debt each month or just pay the interest on the amount you owe (known as an interest only mortgage)
You'll also need to decide whether you’re happy to take on a variable rate mortgage that could become more expensive if rates rise, or whether you’re prepared to pay a bit more for the security of a fixed rate deal.
And whatever type of remortgage deal you choose, remember to take any fees, such as the arrangement fee, into account when comparing your options. Some of the lowest rate buy to let remortgage deals come with fees totalling £1,000 or more, so these can have a big impact on the overall cost.
Consider boosting the equity you have in the property with your savings to raise a larger deposit - this will give you access to a wider range of lenders and - generally speaking - lower interest rates.
If you’re applying for an interest only buy to let remortgage deal, make sure you have a strong plan in place for how you will repay the capital amount borrowed at the end of the mortgage term.
Look at the total cost of the deal, not just the headline interest rate. A buy to let remortgage calculator could prove helpful for this. And consider what charges you will have to pay if you need to sell the property before the deal comes to an end.
Check your credit score before applying for a buy to let remortgage, and take steps to improve it if necessary. This could be as simple as correcting any mistakes, paying down your credit card or ensuring you are on the Electoral Roll at your current address.
Consider approaching a mortgage broker who can help you find a buy to let remortgage deal. Many brokers charge no upfront fee (they are paid a commission by the lender instead). So you can compare the deal they suggest with the best deal you find online.
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