How Can You Remortgage to Buy-to-let?

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If you want to acquire a buy-to-let property, it can be both exciting and challenging. One avenue that potential investors explore is remortgaging, a strategy that involves utilizing the equity in existing properties to secure the necessary funds for a new venture. In this comprehensive guide, we’ll dissect the intricacies of remortgaging for buy-to-let, exploring its processes, potential benefits, and factors that influence success.

Understanding Remortgaging for Buy-to-Let:

  1. The Equity Advantage:

To delve into remortgaging for buy-to-let, it’s crucial to comprehend the concept of equity. Equity represents the difference between a property’s value and the outstanding mortgage amount. For instance, if your property is worth £250,000, with a remaining mortgage of £100,000, your equity stands at £150,000.

  1. Remortgaging Basics:

Remortgaging involves switching your current mortgage to a new deal, whether with the existing provider or a new one. The process allows you to release equity, essentially borrowing funds you’ve already repaid and leveraging any appreciation in property value.

  1. Borrowing Limits:

The amount you can borrow through remortgage hinges on the equity in your property. Lenders often impose a maximum Loan-to-Value (LTV), typically around 75% of the property value. However, some lenders may offer slightly higher LTVs for specific purposes, such as buy-to-let investments.

  1. Property Type Considerations:

It’s essential to note that not all lenders permit the use of equity from a residential home for commercial purposes, like funding a buy-to-let purchase. While some, like Halifax, accommodate this, others, like NatWest, may have restrictions.

  1. Buy-to-Let Remortgaging Factors:

Several key factors influence the success of a buy-to-let remortgage:

  • Income Assessment: Lenders reassess your income to ensure you can cover repayments.
  • Equity Evaluation: The amount of equity in your current property is a pivotal consideration.
  • Credit Score: A thorough credit score examination is conducted.
  • Buy-to-Let Mortgage Repayments: Lenders assess repayments on the new mortgage, considering only the amount borrowed for the deposit.
  • Existing Portfolio: If you own other buy-to-let properties, lenders examine their number, value, and outstanding balances.

Strategies for Accessing Equity:

  1. Selling Your Home:

Selling your property and downsizing to a cheaper home is a straightforward method to access equity. Profits from the sale, not used for the downsized property, can serve as a deposit for a buy-to-let property.

  1. Remortgaging Your Residential Property:

While it’s less likely to purchase a new property outright, remortgaging your residential property can provide the equity needed for a buy-to-let deposit. The key is ensuring the rental income covers the increased mortgage costs.

  1. Remortgaging a Buy-to-Let Property:

Portfolio landlords often opt to remortgage existing investment properties to expand their portfolio. This strategy minimizes risk as personal homes are not used as collateral.

Considerations and Challenges:

  1. Early Repayment Charges (ERCs):

Potential drawbacks include early repayment charges if still within a fixed period. ERCs apply to most mortgages, excluding those on the lender’s standard variable rate.

  1. Equity Adequacy:

Success depends on the available equity in the existing property. In some cases, the property’s current value may limit the feasibility of financing a buy-to-let property.

  1. Dual Mortgage Repayments:

Unless equity is used to purchase the new property outright, managing two mortgages becomes a reality. Repayments on both the remortgage and the buy-to-let mortgage must align with rental income.

  1. Impact on Original Mortgage Rates:

Borrowing more against existing equity may lead to higher interest rates on the original mortgage. The amount of equity retained in the home often dictates the available mortgage rates.

Conclusion:

Deciding to remortgage for a buy-to-let property hinges on individual circumstances, with benefits and drawbacks to consider. While it offers a pathway to finance a buy-to-let venture, careful evaluation of early repayment charges, equity sufficiency, and potential dual mortgage repayments is paramount. A strategic approach, considering rental income and adherence to lender criteria, can turn remortgaging into a valuable tool for realizing your buy-to-let aspirations.

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