How to Increase the Chance of Getting a Buy-to-Let Remortgage? 

As a Buy-to-Let investor, you face tough challenges with increasing regulations, tax changes and the cost of living crisis. 

Many view Landlords as wealthy individuals, but this is not necessarily the case, as many Landlords are “accidental landlords” who keep their residential property for various reasons. This becomes a future Pension and much-needed income for them. 

According to www.gov.uk, in their 2021 survey, 43% of landlords own one property, 39% own between two and four properties, and the remaining 18% own five or more. Complete statistics are here: https://www.gov.uk/government/statistics/english-private-landlord-survey-2021-main-report/english-private-landlord-survey-2021-main-report–2.  

According to www.money.co.uk, around 60% of landlords have a mortgage on their properties. 

If you read this as a Landlord with a BTL mortgage, you may have secured your mortgage on a preferential fixed rate of around 2%, which could end soon. You will be shocked when you see the new rates on offer, and changing lenders may be highly challenging, meaning you could be stuck with your existing lender on a non-competitive rate. 

All Buy-to Let lenders have a rental calculation which ultimately predicts what a lender is willing to lend to you. When rates were at 2%, the rental income required was far lower than today’s calculation. Rent payments have increased but are not in line with the increase in interest rates. 

Realistically, based solely on rental income on today’s rental assessment, you will be lucky to borrow 50% loan-to-value. This is because lenders based their assessment at over 5% + 125% or 145% as high-rate taxpayers. Each lender has their calculation, of course. 

So what is the solution when you cannot get a buy-to-let remortgage through? 

If you have a decent income, “Top Slicing” could be a perfect solution to secure a market-leading Buy-to-Let remortgage. 

Top slicing is an alternative approach to a pure rental affordability assessment that can significantly increase your chances of getting your buy-to-let mortgage application approved. But what exactly is top slicing, and how can it benefit you as a landlord?  

In this blog post, we will delve into the concept of top-slicing, how it works, and why it could be advantageous for landlords looking for a buy-to-let remortgage. We will also look into some key benefits of top slicing and how lenders use it to assess affordability.  

Understanding Top Slicing: 

Top slicing is a technique that allows many lenders to calculate how much money you can borrow based on the rental income of your property coupled with your income. This approach can be beneficial for landlords who own rental properties with low yields or no tenants at the time of mortgage application. Furthermore, if a surveyor down-values the rental income of your BTL property, this can be useful. 

Under a top-slicing method of assessment, lenders will consider your rental income as a source of affordability, alongside your excess personal income, as opposed to solely relying on your rental income. However, this does not mean that top-slicing completely ignores the property’s rental income; instead, it supplements the rental income in determining affordability.  

Key Benefits of Top Slicing: 

One of the most significant advantages of top slicing is that it can often enable landlords to borrow more money than they would have otherwise been able to under traditional rental affordability assessments. Since lenders can consider your income, landlords may be able to access better mortgage rates and terms than under other mortgage application processes.  

Top slicing can also be an excellent option for landlords with multiple properties, as it provides a more holistic approach to affordability. Instead of looking at each property in isolation, top slicing allows lenders to consider the landlord’s entire portfolio, potentially unlocking better mortgage deals for the landlord.  

How Lenders use Top Slicing: 

Lenders who offer buy-to-let mortgages will initially ensure their borrowers meet specific criteria, such as minimum rental income for the property. These ratios can vary from lender to lender, with some requiring as much as a 145% rental income coverage against mortgage payments. However, where rental income is short, they allow top-slicing to make up the difference. Many lenders will wish to ensure the rental income alone can cover 100% of the month mortgage payment.  

To calculate your rental income, lenders usually use a combination of metrics, such as local rents, rental values of other properties in the area (comparable evidence), the type of property you own, your level of borrowing, and your current cash reserves. All these factors will be taken into account when assessing your total borrowing power.  

What to consider before applying for a top-sliced buy-to-let mortgage: 

While top slicing can offer several benefits, there are a few things to consider before applying for a top-sliced buy-to-let mortgage. For one, lenders will assess your income as a supplementary source of affordability, meaning you still need a strong credit history and proof of stable income to qualify for the mortgage. Additionally, while lenders use strict affordability checks, there is still a risk that you may not be able to meet your monthly mortgage payments if rental yields fall in the future. 

Conclusion: 

Top slicing can be an excellent option for landlords looking to remortgage their properties, particularly those with low rental yields or those operating in areas with low rental market rates. It allows lenders to consider your property’s rental income alongside your personal income, resulting in a more accurate assessment of affordability. 

If you need to use top slicing as an option for your buy-to-let remortgage, it is essential to check with an expert independent mortgage adviser to determine whether this solution will work for you. 

The post Mortgage top slicing  appeared first on Conran Mortgages.

How Can I Remortgage and keep my payments low? 

This is a common question we face each day. 

In December 2021, the Bank of England’s base rate stood at 0.1%. Since then, it has increased eleven times and now stands at 4.25%. 

We have been privileged with meagre mortgage rates, and in 2021, it was possible to secure two and five-year fixed rates at under 1%. 

Then came September 2022… Liz Truss was PM, and we witnessed interest rates dramatically increase.  

Thankfully stability has returned, but the cost of borrowing is much higher than we have been used to. 

We don’t predict mortgage rates to ever return to a sub-1% market, but we expect some relative contraction.  

The cost of a 5-year fixed rate is presently 3.89%, and in 2023 we expect about £238 billion of mortgage deals to mature. This will result in increased payments. 

If you secured a two-year fixed rate of 1%, you would be shocked when considering your new fixed rate at 3.89% (the cheapest 5-year fixed rate as of 28/03/23 with HSBC). 

To put this into perspective, based on £250,000 over a 20-year repayment mortgage at 60% loan-to-value, your mortgage payment will increase by £351 per month. That is over £4k per annum in addition to other costs of living increases. 

So what are your options to keep payments low? Let’s look at a few options:

Plan Ahead 

While the Bank of England rates have increased, the cost of fixing your mortgage rate has reduced. This is because lenders base their mortgage rates on the SWAPS market. This market predicts that rates will come down; therefore, the cost of borrowing at a fixed rate is cheaper than the BoE base rate. 

You can secure a new rate up to six months before your current rate expires, and you have nothing to lose by doing so because you are not committed to the chosen rate until it completes (ensure you chose one with a free valuation and legal fees). Therefore, if rates do reduce, you can select a new product with the surety that you have your current rate secured if rates do not reduce! 

A savvy Independent Mortgage Expert will monitor the market and advise you accordingly. 

Tracker rates 

Most experts predict that rates will reduce once we control inflation. If you choose a fixed rate, you have the guarantee of stability, but you won’t benefit from any reduction in interest rates. If you feel brave, then a Tracker rate will reduce as rates are cut. 

The cheapest 2-year tracker rate cost is 4.39% (0.14% over the BoE base rate) with Barclays Bank (28/03/23). 

Increase your mortgage term 

In an ideal world, the last thing you want is the burden of a mortgage hanging over you for any longer than necessary. 

Sadly, the world is not ideal now, and many are in “survival” mode.  

Subject to age criteria for the mortgage lender, could you increase the term of the repayment mortgage, which will reduce your monthly payment.  

If you opt for this solution, we strongly advise you to ensure it fits within your retirement plans and consider overpaying and/or reducing the mortgage term when affordability returns. 

Could Interest Only be a short-term solution? 

Again, this is not ideal, but it is a solution for many. Paying the interest only will result in not repaying the capital element of your mortgage. Very risky! 

Lenders will allow this for those with a minimum income, generally, a higher income customer, coupled with a plan to repay the capital element – selling the property is not always an acceptable repayment method. 

This is a great way to reduce your monthly payment, but please have a plan. Consider an overpayment when you receive bonuses or dividends generally works well. Most lenders will allow 10% overpayments per annum – some more. 

Overpay your mortgage 

If you are sitting on one of those lovely 1% fixed-rate mortgages and have a few years remaining, we urge you not to bury your head in the sand, as you may have a big shock in store. If you have the financial capacity, please repay as much of the capital as possible, as the lender will allow, without occurring redemption penalties. You will thank us when you come to remortgaging house. 

We hope this adds some value to your future remortgage, and please reach out to one of our experts if you need any expert guidance. 

The post Remortgaging When You Need to Keep Payments to a Minimum?  appeared first on Conran Mortgages.