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Refinancing Buy-to-Let Mortgages

Jun 3, 2008
Remortgages now comprise almost half of all mortgage business written in the UK. This is largely due to the mainstream residential mortgage market. Refinancing buy-to-let mortgages is not quite as popular. The majority of buy-to-let mortgages approved are made up of mortgages obtained on the properties at purchase. Buy-to-let remortgages consist of a much smaller portion when compared to the residential market.

The reasons for this are unclear but could be attributed to property investors simply having less of a reason to remortgage that their owner-occupier counterparts. Investing in property is a long-term commitment and many investors choose buy-to-let mortgages that should prove sufficient, at least in the medium-term.

Additionally there has not been as much choice with regards to products to remortgage to. Initially there were only four lenders who provided buy-to-let mortgages in the UK. This number has grown to about 50 but it still not as high as the residential mortgage market. The lack of choice may be a factor in discouraging property investors from remortgaging as frequently as owner-occupiers.

The trend is changing, however, and buy-to-let investors are open to remortgaging more than ever before. The market is more competitive and lower yields mean that investors must be on the lookout for ways of saving on the running costs of their properties. Investors also like to release equity that has built up in their properties in order to provide the funds to buy more property or to fund their personal lifestyles.

While the primary reason for remortgaging a buy-to-let property may be to save money, switching lenders simply because of a lower interest rate is not recommended. There are many other factors to consider including exit and entry fees, the structure of the interest payments, and the flexibility of buy-to-let mortgages. Assessing a remortgage on the headline interest rate alone is not a good idea.

Instead, property investors must first assess whether their existing mortgage contains any Early Repayment Charges and whether the remortgage product has any hefty application fees and mortgage broker fees. Sometimes producing savings via a lower interest rate can be negated by such fees.

It is also important to assess the structure of the interest rates on buy-to-let mortgages. Ordinarily the rate will be attached to the Bank of England Base Rate (BoEBR) and will be offered as a tracker, discount, or capped rate. Interest rates can also be fixed for a period of time in order to help with budgeting.

Overpayments and underpayments may also be necessary throughout the term of the loan. Buy-to-let investors may find that they require such flexibility and if so they should seek to remortgage to a product that offers such options.

Finally, before switching to a new lender, investors should contact their current lender with the details of the product they are considering remortgaging to in order to find out if the current lender will match the offer. This could save the property investor both time and money. Lenders are often receptive to such propositions in order to retain the business of a good client.
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