Buy-to-let (BTL) properties are properties which are owned by a landlord and rented out to tenants. In order to rent out a property, you need to have a BTL mortgage as standard residential mortgages generally do not cover this.
Landlords may wish to consider remortgaging their property for a number of reasons, such as increasing funds to improve the property or expand their property portfolio. They may also wish to reduce their monthly mortgage payments by remortgaging and switching mortgage providers.
Switching mortgage providers can be beneficial as many mortgage agreements have short-term fixed rates, which after a few years become variable, usually increasing monthly payments. In switching mortgages, you can shop around for the best deals and ensure you are keeping costs low.
Buy-to-let remortgages allow landlords to reduce their costs and redistribute funds to other areas.
How does a Buy-to-Let Remortgage Work?
Buy-to-let remortgages are different to regular residential remortgages. Although BTL mortgages also involve borrowing a certain amount and paying it back in monthly instalments, typically BTL mortgages are interest-only. This means that you only pay the interest each month, but face clearing the outstanding balance at the end of the mortgage term, when selling the property or when arranging a remortgage.
The amount offered by the mortgage lender is determined by a few factors and is known as the loan-to-value (LTV). This is the percentage of your property’s worth and equity you wish to borrow. These vary with some lenders up to 80%. In order to find the best deal it is worth consulting mortgage advisors. Here at The Mortgage Genie we can help you find the best remortgage rates for your situation.
Mortgage providers take into consideration certain factors for BTL remortgages. Remortgage and mortgage providers require information on tenants, for example if your property is rented to multiple students then lenders may only offer specific HMO products. They also require information on the rental value of the property as this will be compared by the lenders within their company in order to determine how much they are willing to lend you.
In remortgaging your property, you will have to end your previous agreement. This usually incurs an exit fee which you would need to take into account during your financial planning.
What Deposit do I Need for a BTL Remortgage?
For a BTL mortgage or remortgage, you will need a considerably larger deposit than is needed for a residential property. You may also usually face higher interest rates. This is because lenders are protecting themselves in case there are periods where there are no tenants or tenants who fail to pay rent, as this means there is no rental income from the property and therefore the landlord may not be able to make mortgage payments.
Typically, most BTL mortgages require a 25% of the property value deposit, although this can be as high as 40% subject to the rental income. In order to keep rates and deposit amounts affordable it is important that you make yourself an attractive customer for mortgage providers. You can do this through having a good credit score, and having a long lease or freehold property.
What is the Difference between a BTL Mortgage and a Residential Mortgage?
Residential mortgages are for property owners who intend to live in their property, while BTL mortgages are for those who intend to rent their property out.
Landlords typically pay less than residential owners monthly as they take out interest-only mortgages while residential mortgages require full payments. BTL mortgages however require higher deposits and are subject to more criteria than residential mortgages. You can have a BTL mortgage on a repayment basis, this will form part of your financial planning and ensures that the balance will be cleared at the end of the mortgage term.
Can I Remortgage my Home to a Buy-to-Let?
Remortgaging in this manner is very common. It involves changing your property from a residential mortgage to a Let to Buy (LTB) mortgage as you usually can not rent out a property with a residential mortgage.
You may wish to remortgage your home to let to buy because you are moving but wish to keep your property and rent it out in order to generate extra income. If you have rental income from the property then this should finance the mortgage payments.
While remortgaging your home to be allowed to let it out in order to generate income may be an attractive prospect, it is important to keep in mind the costs associated with letting out property. Alongside your mortgage payments, you may also need to pay letting fees to letting agents in order to attract tenants. You will also need to keep the property suitable insured and maintain the property to a high standard.
Whether you are remortgaging your buy-to-let property or remortgaging your home in order to rent it out, here at The Mortgage Genie we can help. We can provide you with personalised advice and find you the best possible quotes. Contact us today to learn more.
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