Buy to let remortgage

Why a buy to let remortgage is time-sensitive

A rental property on a reversion rate does not simply cost more; it can stop working. The rent is fixed for the length of the tenancy, the payment is not, and the gap comes straight out of the margin you were relying on to cover voids, maintenance, agent fees and tax.

Because a buy to let remortgage is assessed on the rent, and because the rent may not have moved as much as the cost of borrowing, the property that comfortably passed a stress test when you bought it may not pass one now. That is a very different situation from a residential remortgage, where your salary has usually at least kept pace.

When rent does not rise

A landlord can be trapped on an expensive rate through nothing they have done, simply because the rent has not risen as fast as the cost of borrowing — so the property no longer passes the test that would let them refinance out of it.

This is the case we are asked about most often, and it is worth saying plainly that it is not a personal failing or a credit problem. It is arithmetic. It also has answers, which is the rest of this page.

Releasing equity to fund the next deposit

Refinancing to release capital is how most portfolios are built. The mechanics are straightforward: the property is revalued, a larger loan is taken against it if the rent supports one, and the difference funds the deposit on the next purchase.

The constraints are less obvious. The new, larger loan has to pass the stress test at the new balance, so an increase that looks comfortable against the value can fail against the rent. Lenders also ask what the money is for and may want evidence. And where you are raising capital on one property to buy another, the timing has to work — the new purchase cannot exchange on money that has not yet been drawn.

• Test the larger loan against the rent before you commit to a purchase timetable
• Expect a valuation, and expect it to be a lender-panel view rather than an agent's opinion
• Consider which property in the portfolio is the right one to refinance, not simply the one with the most equity
• Watch product end dates across the portfolio, so you are not forced to refinance several properties in the same month
• Where the capital is needed faster than a remortgage allows, short-term lending is an option, but only with a defined exit

The reversion rate eating the yield

When a buy to let product ends, the loan generally moves to the lender's standard variable rate or a stated follow-on rate — check your own offer, because they are not the same thing and some trackers do not revert at all. On an interest-only buy to let the whole payment is interest, so the effect of a higher rate lands immediately and in full.

Do not simply wait for the market to improve. Every month on the reversion rate is money out, and the longer the property sits there the more likely it is that arrears or a strained cash position start to affect your ability to refinance at all. Come to us while the numbers are still uncomfortable rather than broken.

What to do when the stress test falls short

There is a fix that sounds sensible and does not work, so we will deal with that first. Lengthening the mortgage term does not help. The interest cover test is calculated on an interest-only basis, so the term does not enter the calculation at all. On a residential mortgage a longer term reduces the payment and helps affordability; on buy to let it changes nothing the lender is measuring.

The lever that does work: a longer fixed rate

Many lenders apply a lower stress assumption to longer fixed rates, on the basis that the payment is known for that period. A longer fix can therefore support a materially larger loan than a shorter one at the same balance, and it is the first thing we test when a case is tight. The trade-off is real — you are committing for longer, and the early repayment charge applies for longer, which matters if you might sell or move the property into a company.

The other options, honestly

• A different lender, because rental calculations and assumed rates vary considerably between them
• Reducing the loan by putting capital in, which is unwelcome but sometimes the cheapest answer over the period
• Top slicing, where a lender will use surplus personal income to cover the shortfall
• Evidencing a higher achievable rent, with a lettings appraisal, or reviewing whether the rent is genuinely below market
• A product transfer with the existing lender, which usually does not re-test the rent and is often the only route when nothing else fits
• Accepting that this property should be sold, which we will say if that is what we think

A product transfer deserves emphasis. Where a full remortgage will not pass, staying put on a new product with your existing lender frequently will, because the loan is not increasing and the property is not being reassessed. It is not glamorous and it is often the difference between a working property and a stranded one.

Moving a property into a limited company

Landlords often ask whether an existing personally held property can be moved into a limited company at remortgage. It can, but not as a transfer. In law it is a sale by you and a purchase by the company, and it needs to be treated as such.

That means conveyancing on both sides, a new mortgage in the company's name with personal guarantees from the directors, the existing mortgage redeemed with any early repayment charge that applies, and potentially stamp duty land tax on the company's purchase. There may also be a capital gains position on your disposal. Whether the tax consequences make it worthwhile is a question for your accountant, and the mechanics are a question for your solicitor. We will tell you exactly what the lending looks like on each side and we will not pretend the tax outcome is ours to advise on.

What a landlord remortgage is underwritten against

Expect more scrutiny than the original purchase, particularly if you now hold several properties. Lenders will look at the subject property's rent and condition, the tenancy in place, your portfolio schedule, your personal position, and whether the property complies with the obligations that come with letting.

• The tenancy agreement, and whether the tenant type matches the mortgage conditions
• Energy performance and licensing, which some lenders now check directly
• Any works the valuer requires, which can mean a retention on the new loan
• Portfolio-wide testing where you are treated as a portfolio landlord
• Whether the property has drifted into house-in-multiple-occupation use without the mortgage reflecting that

The cases we see handed back by other brokers are usually the ones where two of these overlap — a tight rental calculation on a property that has also been let room by room, for instance. Those are placeable, but only with a lender whose criteria already accommodate both, which is why we would rather see the whole picture at the start.

Your property may be repossessed if you do not keep up repayments on your mortgage.

What we charge

Our fee is typically £495, though complexity moves it, and it is always disclosed in writing before you apply. Each stage of the fee is earned when that stage is reached and is not refundable after that point. Separately, you have the right to cancel within 14 days, as set out in our Terms of Business. We are usually also paid a procuration fee by the lender.