DANIEL, 45, right, owns a buy-to-let property worth £700,000. He has an interest-only mortgage for £270,000 with the Bank of Scotland, at 6 per cent, and wants to remortgage to release equity to invest in another buy-to-let. He is hoping to borrow £595,000. He receives £3,500 a month in rent.
Jonathan Cornell, of Hamptons Mortgages, says: Before Daniel contemplates remortgaging, he should make sure that there are no early repayment charges on the existing mortgage and find out whether his existing lender will offer the same terms as it does to new customers.
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Most buy-to-let lenders are not willing to offer high buy-to-let loans and especially not at high loan-to-value. Most offer loans of up to 85 per cent, but once loan sizes go above £300,000 the loan-to-value starts to drop.
Buy-to-let mortgages are not dependent on the applicant’s income: the main determinant is the rental value of the property in question. If the monthly rental is quite low, the lender will restrict the amount it will lend. Most buy-to-let lenders will expect the property to generate a rental income about 25 per cent above the mortgage payment.
Landlords should be careful when working out the rental price. Lettings agents will typically give figures at the high end of the scale in the same way that estate agents may sometimes put slightly higher values on properties than the likely sale price.
BM Solutions offers a great buy-to-let remortgage tracker rate that has a calculation at 125 per cent of base rate plus 0.50 per cent. The interest rate is 0.16 per cent below the base rate for the two years, giving an actual pay rate of 4.84 per cent. If Daniel borrows 85 per cent of the value of the property then this gives a loan size of £595,000. The monthly interest cost would be £2,400, so the rent would need to be £3,409 to get that loan size. There is a £799 fee that can be added to the loan on completion. He would receive a refund of up to £490 on the cost of his valuation and a £250 cashback on completion.
Hamptons: 020-7220 1000
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