A Guide to Remortgaging Your Buy-to-Let Property

Introduction

In the ever-evolving landscape of buy-to-let property investments, remortgaging can be a powerful strategy for savvy landlords. Remortgaging involves switching your existing mortgage to a new mortgage, usually with a different lender. This process can open up many possibilities, from harvesting the increase in the equity tied up in your property to extending the term of your mortgage. By leveraging the benefits of remortgaging, you can potentially enhance the flexibility and profitability of your rental investment.

Why Remortgage Your Buy-to-Let Property?

Harvest the increase in the equity tied up in your property:

The value of your buy-to-let property may have increased, over time, allowing you to build up more equity than what it was originally. By increasing the size of your mortgage loan through remortgaging, you could encash some of this equity increase. The inflow of such additional cash funds can be invaluable for various purposes, such as expanding your property portfolio by investing in an additional buy-to-let property, or financing renovations or improvements to enhance the value of your existing property.

Extend the term of your mortgage:

At inception, a mortgage term is usually 25 years’ long, provided that the borrower will not be more than 70 years’ old at the end of that term. If your mortgage term is scheduled to expire in a few years’ time and you will still be significantly below 70 years of age when that happens, a remortgage could be a good way of extending your mortgage term, if that is what you want from a financial planning perspective.

Secure a better interest rate:

Another reason for remortgaging a buy-to-let property is the prospect of securing a better interest rate. As interest rates fluctuate, a remortgage can help you take advantage of more favourable deals, resulting in lower monthly mortgage payments. This reduction in outgoing costs can improve your cash flow and increase the overall profitability of your rental investment, at least in the short to medium term while the relatively lower interest rates last.

Switch to a different mortgage product:

Remortgaging also represents an opportunity to transition between different mortgage products. For instance, you may want to consider moving from an interest-only mortgage to a repayment mortgage.  

When to Consider Remortgaging

One of the most reasonable times to consider remortgaging is when you are approaching the end of your current fixed rate deal. When the current fixed rate period ends, you will need to choose another fixed rate. Otherwise, you will be automatically transferred to your lender's standard variable rate, which can be significantly higher than a fixed rate. By remortgaging to coincide with the end of your current fixed rate period, you can ensure a transition to your new mortgage without any unnecessary additional interest costs or prepayment penalties.

Desire to access additional equity from the property

Suppose you need a lump sum of cash for property renovation or further investment. Remortgaging can effectively access the equity tied up in your buy-to-let property. By releasing this equity, you can obtain the additional funds you need without having to sell the property outright. If the timing of the remortgage does not coincide with the end of your current fixed rate period, it is worth doing the financial analysis to check if the prepayment penalty would be worth paying, as against delaying your plans. If you are on tracker rate, not a fixed rate, however, there will usually not be a prepayment penalty, so the timing does not matter.

The Remortgaging Process

Compare remortgage deals and find the best fit for your needs

The first step in the remortgaging process is to research and compare the available deals in the market. Working with a reputable mortgage broker can be invaluable, as they should have access to a wide range of lenders and products, and should be able to help you navigate the various options to find the best fit for your investment goals and financial situation.

When evaluating remortgage deals, consider factors such as interest rates, arrangement fees, loan-to-value ratio, mortgage term and affordability assessment requirements. It is also essential to consider if the deal you choose aligns with your plans for the property, whether you want to hold on to it as a long term investment, for example, or potentially sell it in the relatively near future.

Instruct a solicitor or conveyancer to handle the legal aspects

Once you have identified a suitable remortgage deal, you will need to instruct a solicitor or conveyancer to handle the legal aspects of the process. This includes liaising with your current lender to obtain a redemption statement, conducting necessary property-related searches and checks, and ensuring that the mortgage transfer from your current lender to the new one is carried out smoothly and in compliance with all legal requirements.

Pay fees such as valuation fees or early repayment fees from your existing lender

Throughout the remortgaging process, you may incur various fees, in addition to conveyancing costs. These can include valuation fees, arrangement fees charged by the new lender and early repayment charges from your current lender if you exit your existing mortgage fixed rate deal before its scheduled end date. It is crucial to factor these costs into your calculations and ensure that the potential savings or benefits of remortgaging outweigh the costs.

Conclusion

Remortgaging your buy-to-let property can be a strategic tool for enhancing the profitability and flexibility of your rental investment. Remortgaging can provide valuable opportunities if you are seeking to access equity for further investment, increasing the length of your mortgage term, securing a better short term interest rate or transitioning to a mortgage product that better aligns with your circumstances.

However, it is essential to approach the remortgaging process carefully and, ideally, seek professional advice from financial advisors or mortgage brokers. These experts can guide you through the available options, help you evaluate the potential costs and benefits and ensure that you make informed decisions, supporting your buy-to-let strategy's long term success.

FAQs

Q. How often should I consider remortgaging my buy-to-let property?

A: There is no set period, but it is generally advisable to review your mortgage deal periodically, especially as you approach the end of a fixed rate term or if there have been significant changes in your financial situation.

Q. Can I remortgage with a lender different from my current one?

A: Remortgaging often involves switching to a new lender, although it may also be possible with your current lender.

Q. Will I need to undergo another affordability assessment when remortgaging?

A: You will almost certainly need to undergo an affordability assessment as part of the remortgaging process. This is likely to include your property’s rental yield versus a hypothetical increase in interest rates, and other costs, such as letting agent commissions, service charges, insurance premia and maintenance costs. Your credit standing and personal income will probably also be examined. Your savings and investments might be taken into account as a potential source for repaying the mortgage, particularly an interest-only mortgage.

Q. Can I remortgage if I have an interest-only mortgage?

A: You can remortgage an interest-only mortgage, but you may need to provide evidence of a credible repayment plan for the outstanding mortgage balance at the end of the term, as well as meeting the lender’s affordability checks satisfactorily.

Q. How long does the remortgaging process typically take?

A: The timeline can vary, but generally it should take around 4-8 weeks from submitting your remortgage application to completing the legal process and transferring the mortgage to the new lender. However, it is prudent to allow for unexpected delays in matters such as local authority searches.