Remortgaging, in residential property, is something we covered in depth in an article in late 2022.
Since that article was published, we have received a lot of questions about remortgaging buy-to-let property; as it works slightly differently.
In her latest article, Commercial Property Solicitor Hannah Martin looks at how remortgaging works on buy-to-let property and outlines whether it’s a good option for you.
What is remortgaging?
Remortgaging involves changing the mortgage deal on your property, usually to your benefit.
Most of the time, people remortgage their property to switch lenders which, in turn, can lead to reduced monthly payments.
In addition, remortgaging can allow you to release further equity from your property or refinance after the end of a fixed rate period.
Can I remortgage my buy-to-let property?
Yes, it is possible to remortgage a buy-to-let property, however, most lenders will only remortgage properties that have an 80% loan to value ratio (LTV) or lower.
The loan to value (LTV) is the amount you've borrowed as a percentage of the property's value.
How does remortgaging work on a buy-to-let?
The remortgaging process works similarly to getting a mortgage on a residential property.
The lender will want to make sure that they obtain adequate security over the property and, therefore, will often make your solicitor complete due diligence on the property as if it was being purchased.
This due diligence can include undertaking searches on the property and reviewing the title.
If you hold the leasehold interest in the property, we may need to review the lease to ensure that the time left on the lease is over 80 years and complies with the lender’s other criteria.
If the lease is below 80 years, a lease extension may be required. At Frettens, we have a dedicated Leasehold Property Team, which is one of the largest in the area, who can help you with this. Call us on 01202 499255 to find out more.
When the sums are received from your new lender, we will use them to set up the loan with your existing lender and any surplus is then released to you.
Is it better to release equity or remortgage a buy-to-let?
An equity release scheme is often used to free up capital from a property to be used on another purpose, such as a second property.
Equity release is only available to individual property owners, so if you own the property in a company name you will not be able to enter into a scheme.
In addition, on buy-to-let property, you need to go through the remortgaging process to release equity; unlike residential property.
What are the pros and cons of buy-to-let remortgaging?
As with any decision regarding buy-to-let property, remortgaging has its advantages and disadvantages.
Pros
- You could find a better deal and reduce the monthly payments
- It could raise money to invest in further buy-to-let properties
- A fixed interest mortgage will provide some level of security over the next few years
- The Loan-To-Value (LTV) may have changed so you get a better rate
Cons
- There could be early repayment charges on your existing mortgage
- You could be subject to higher interest rates if your existing mortgage is still on a fixed interest scheme
- The legal costs will be similar to a purchase, so this might not make financial sense if the monthly payments are not substantively reduced.
Do I pay stamp duty if I remortgage a buy-to-let?
No, you wouldn’t pay stamp duty on a buy-to-let remortgage. This is because you already own the property and stamp duty is only payable on a new purchase.
Related: What is stamp duty and what are the current rates?
Relted: What is stamp duty in commercial property and how to get relief?
How soon can you remortgage a BTL mortgage?
How soon you can remortgage will depend on the terms of your existing mortgage.
Most mortgages will include early repayment fees which you’ll be charged for if you remortgage during the fixed interest term.
So, if possible, it is best to remortgage once you’ve reached the end of your fixed interest term.
If you’d like further advice on this, please don’t hesitate to get in touch with our bright Commercial Property team here.
Can you be refused a remortgage?
As with all mortgages, you could be refused a new mortgage for any reason i.e. you do not have the financial standing required, or the property will not provide adequate security for the lender.
Some lenders may also refuse to lend due to how the property is let, i.e. if the property is occupied by students it may be more difficult to obtain a mortgage compared to a settled family living in the property.
Read our guidance on houses in multiple occupation (HMOs) here.
How long does a buy-to-let remortgage take?
It is often recommended that you start the process of remortgaging around six months before you are looking to exit your current mortgage.
This will provide you time to shop around and get a suitable offer before we then assist with the legal aspect of the process which can take around two months to complete.
This is especially where the lender requires full due diligence to be undertaken to the Property.
Our advice on buy-to-let remortgaging
Hannah Martin, Commercial Property Solicitor, says: “This process is often more involved and time consuming than you may originally anticipate.
As most remortgages require a similar amount of work as a purchase, it is worth factoring in a reasonable amount of time to get this done.
If you need any assistance with this, or have any questions, please don’t hesitate to contact our team below.”
Remortgaging solicitors
Our bright and experienced Commercial Property team would be happy to assist you with remortgaging.
We have bright, modern and accessible offices in Christchurch and Ringwood, but our excellent IT systems allow us to work with clients from all across the country.
You can get in touch with us for a free initial meeting by calling 01202 499255 or filling in the form at the top of the page.
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