If you own buy to let property, and even if it remains subject to a mortgage, you almost certainly have equity tied up in your investment.
There may come a time when you want to unlock a proportion of that equity – to improve your let property, for example, or to expand your investment portfolio. One of the readily accessible ways of releasing equity from a buy to let property is to secure a remortgage.
What is a remortgage?
A remortgage is very simply a new mortgage taken out on a property you already own. The remortgage serves either to replace a mortgage that currently exists on the property or represents a way of borrowing against the property.
As the Money Saving Expert points out in an article last updated on the 4th of February 2020, approximately one-third of all loans on residential property in the UK are remortgages.
You may remortgage a buy to let property in the same way as you may remortgage the home you live in – although the lending criteria on that remortgage are likely to differ.
Benefits of remortgaging
Some of the benefits of remortgaging have already been mentioned. By replacing an existing mortgage with an alternative remortgage you may get a more attractive deal (in terms of the mortgage conditions or interest rate, for example).
A remortgage might also release equity from the property you own so that it can be renovated and improved. Or, you can use the funds to invest elsewhere, in buy to let property, for instance.
There are also circumstances that might seem less immediately obvious.
Change of residential status
If you live in a home you are buying with a standard owner-occupier’s mortgage, for example, you might decide to move house but want to hold on your original home and let it out to tenants. In that case, your original owner-occupier’s mortgage is no longer appropriate since you need a buy to let mortgage to reflect the changed status and circumstances of the let property.
The reverse is also true if you want to change the use of a previously let property into your own main residence – an owner-occupier’s remortgage may be appropriate.
If you are a landlord who wants to transfer your portfolio of let properties into a limited liability company, this might be a further reason for considering a remortgage – in that case, of course, a remortgage to a limited company mortgage.
There may be tax advantages in incorporating your buy to let business – and Listen to Taxman considers some of these. For your remortgage application to succeed, you may need to ensure that the company you set up for these purposes is a Special Purpose Vehicle (SPV).
How to remortgage a buy to let property
When a remortgage is a replacement mortgage, the prospective new lender may consider your established track record in managing mortgage debt. Maintaining the repayments on an existing buy to let mortgage and never defaulting stands you in good stead when it comes to applying for a remortgage.
It is important to remember, however, that a remortgage – whether as a replacement mortgage or as a way of raising additional funds – still represents a new mortgage. Any lender will need to conduct affordability tests and credit checks on your financial status in just the same way as the first time around for your initial mortgage.
Remortgaging a buy to let property, of course, also needs to take account of the income generated by the rents received from tenants. Rental income is the acid test for any buy to let mortgage or remortgage. Unlike the initial application for your current buy to let mortgage, however, an application for a remortgage may be based on actual rental income performance, rather than on estimates or projections of such income.
Any additional personal income you may be earning may also be considered by your buy to let remortgage lender – especially if there has been any significant change in your circumstances since the current mortgage was arranged.
As with your initial buy to let mortgage, any buy to let remortgage may be offered at one in a wide range of possible loan to value (LTV) ratios. The ratio you are offered depends on a whole host of factors relating to your financial circumstances and the let property to be remortgaged.
Remortgaging a buy to let property typically can be a useful way to raise funds – using the services of a mortgage broker to find the most suitable BTL remortgage product for you may be your next step.