Buy-to-Let mortgages & re-mortgages – the facts

How buy-to-let mortgages differ

If you are a buy-to-let landlord with a personally held portfolio, one way you can improve your profit margins is to re-mortgage properties to get a better deal.

As you will be aware, buy-to-let mortgages differ from personal mortgages in a number of respects. Key among them are:

• BTL mortgage fees and interest rates are usually higher than for comparable owner-occupier borrowing.
• Most, though not all, BTL mortgages are interest-only, meaning you repay the full capital balance at the end of the term unless you refinance or sell.
• Minimum deposits tend to be high; 25% is common, but lender and product limits vary.

Lenders commonly assess the rent using an interest coverage ratio: forecast rental income must cover a stated percentage of stressed mortgage interest. The Bank of England says lenders tend to use a minimum of 125%. It also notes that lenders have often used 145% in practice for higher- and additional-rate taxpayers. The stress rate, ratio and any exemptions vary by lender, borrower, product and fixed-rate period, so neither figure is a universal rule.

Lenders apply their own criteria for credit history, personal income, experience, age at the end of the term, property type, loan-to-value and portfolio size. Some require a minimum personal income or existing home ownership; others do not. Check the criteria for the particular lender and product before applying.

Buy-to-let mortgages are offered by banks, building societies and specialist lenders. Whether you are looking for your first buy-to-let mortgage or a remortgage, consider speaking to a broker with suitable buy-to-let experience. Ask which lenders and products they can compare, and how they are paid. If the advice concerns a regulated mortgage, check the firm or adviser on the FCA Firm Checker.

Should you remortgage?

Because tax changes have eaten into the profits of landlords who hold buy-to-let properties personally, many are considering re-mortgaging. However, because lenders tend to ask for a higher rental income than before, finding a better deal can be difficult.

Some landlords consider remortgaging their home to reduce buy-to-let debt. This can put the home at risk, extend the repayment term or increase total interest even where the headline rate is lower. Compare all fees and repayment costs, and obtain regulated mortgage advice. Ask a tax adviser how the use of the released funds affects the tax treatment of the interest. Borrowing secured on a home does not escape the residential finance-cost restriction if the funds are used for the property business

For these reasons, it’s essential that you get specialist advice before seeking a buy-to-let mortgage or re-mortgage.

A limited company may be worth considering for future buy-to-let purchases, but it is not automatically suitable for either existing or new properties. Compare the tax, borrowing and administration costs, including the tax due when taking money out of the company. Company mortgage availability, pricing and underwriting also differ, so take tax and mortgage advice before deciding.