Buy to let remortgage

The short answer

Start looking about six months before your fix ends. Most lenders let you lock in a new rate that far ahead. If you do nothing, you usually move onto the lender's variable rate, which is often well above the best fixed rates.

Product transfer or full remortgage?

• Product transfer. You stay with your current lender and pick one of its new deals. It is quick, there are usually no legal fees, and there is often no new valuation or rental stress test. It is a good fit when you are not borrowing more.
• Full remortgage. You move to a new lender. It takes longer (often four to eight weeks) and the new lender will value the property and test the rent again. It is usually the only way to raise capital or reach a lender with a better rate for your property type.

Compare both. Your current lender's offer is the benchmark the rest of the market has to beat once fees are included.

Early repayment charges

Leaving a fixed rate early usually costs an early repayment charge (ERC), often 1% to 5% of the balance on a sliding scale. On a £150,000 loan, a 3% ERC is £4,500. Check your offer letter for the exact date the ERC ends. Many lenders let you complete a remortgage on that date with no charge if you plan ahead.

How lenders test the rent

A new lender works out how much you can borrow from the rent, not your salary. The usual test is that monthly rent must cover the interest by:

• 125% for limited companies and basic-rate taxpayers.
• 145% for higher-rate taxpayers at many lenders.

The interest is worked out at a stress rate, often the pay rate or a notional rate around 5.5% to 7%, depending on the product. Five-year fixes are often tested at the actual pay rate, which is why they can let you borrow more.

A worked example

Rent is £850 a month. At a 125% test and a 5.5% stress rate, the maximum loan is £850 × 12 ÷ (1.25 × 0.055) = £148,363. At 145%, it falls to £127,899. Run your own numbers through the deal analyser.

Raising capital for the next property

If the property has gone up in value, a remortgage can release equity for another deposit. Lenders will ask what the money is for. Buying more property, refurbishing or paying off other buy-to-let debt is usually fine. Some lenders also limit how soon after buying you can remortgage, often six months.

Releasing equity raises the loan, so the rent has to pass the stress test on the bigger amount. That is usually the limit, not the valuation.

Documents to have ready

• Your current mortgage statement and redemption figure.
• The tenancy agreement and proof the rent is being paid.
• Your latest tax return or SA302s, or company accounts if you borrow through a company.
• A schedule of your other properties if you have four or more. See portfolio landlords.

Is it regulated?

A remortgage on a property you let out as a business is usually not regulated by the FCA, so we can talk to you about it now. If you or a family member live in the property, or the loan is secured on your home, it is regulated and we cannot help with that yet.

Common questions