In real estate, remortgages involve replacing an existing mortgage loan with a new one – often with updated terms and rates. Property remortgages open up opportunities for homeowners and landlords looking to access additional financing against existing holdings. Let’s explore common reasons, options, and best practices for securing property remortgages in today’s market.
Why Consider Property Remortgages?
Several factors may motivate borrowers to pursue property remortgages rather than continue paying down original mortgages. Typical motivations include:
Accessing home equity – Rising property values often translate to tens or hundreds of thousands in new equity able to be leverage via remortgages. This “cash-out” gives liquid funds for investments, expenses, renovations or other costs debt-free.
Getting better rates or terms – If original mortgage rates were high, remortgages allow borrowers to refinance at lower prevailing rates, saving potentially thousands in interest costs. Updated terms can also provide payment flexibility if needs have changed.
Consolidating other debts – Remortgages allow borrowers to roll multiple debts like credit cards, car loans, HELOCs, etc. into a single manageable payment at likely better rates. This simplifies finances.
Funding property upgrades – From flipping houses to improving rentals, remortgages reliably finance high-ROI property upgrades that command higher rents and sale prices.
For these reasons and more, remortgages hold appeal whether owning one investment property or an entire rental portfolio empire. Tapping available equity simply makes accessing capital easier than traditional lending routes. And terms usually get better since the property itself already serves as collateral.
Popular Types of Remortgages
If exploring property remortgages in the UK, familiarize yourself with the most common specific types available:
Standard Variable Rate (SVR) Remortgages
SVRs start with baseline rates that follow general interest rate markets, moving up or down accordingly. They offer flexibility to make lump sum payments without early repayment charges. However, variable means less predictable payments long term.
Tracker Rate Remortgages
Tracker rates attach to a benchmark like the Bank of England base rate. The interest charged stays within a set margin percentage above or below changes to that benchmark rate. This also provides adjustable predictability.
Fixed Rate Remortgages
Fixed rate remortgages lock in a set interest rate for a defined period, usually 2-5 years. This allows reliable budgeting of precise mortgage costs for the fixed period. However, it limits flexibility if finance needs change.
Discount Rate Remortgages
Discounted rates provide a percentage discount on lenders’ SVR rates for certainty of some savings. However, underlying SVRs could always increase, so some variability continues.
Understanding common remortgage structures helps borrowers weight options compatible with their finance needs and risk tolerance.
Benefits of Remortgaging Investment Property
Property investors stand to gain particular advantages from proactively reviewing remortgage opportunities. Strategic remortgages allow investors to tap equity for expanding portfolios.
Access to Better Mortgage Rates
If original investment property mortgage rates now seem high compared to deals on offer, remortgaging with a new lower rate saves thousands long-term. This frees up cash flow to allocate across other holdings.
Ability to Release Equity
As mentioned previously, stellar home price growth in recent years translates to significant untapped equity for many buy-to-let homes. Even if happy with current mortgage product features, remortgaging lets landlords extract 20-60% of a property’s value in usable equity.
Fund Property Improvements
Remortgaging creates capital for value-boosting rental property makeovers at better rates than other financing. Just minor kitchen or bath updates can raise rents 10% or more. Immaculate interiors attract better tenant pools as well.
Build Investment Portfolios
For serial investors, repeating the remortgage and equity release process with each new property acquisition funds down payments on the next purchases. This efficient approach builds full portfolios.
So whether needing capital to expand holdings or simply wanting to cut interest costs, remortgaging buy-to-let properties optimizes returns.
What to Know Before Remortgaging
While remortgages open up helpful opportunities, consider these key factors when assessing options:
Closing Costs & Fees
As with traditional mortgages, remortgaging incurs fees including valuation and legal costs around 1-2% of the loan value. These closing costs factor into determining the breakeven point on savings relative to current mortgage costs and rates.
Early Repayment Charges
If the original mortgage came with early repayment penalties, existing lender could levy fees for paying off the balance before full term. Account for such charges in remortgage cost analysis.
Ongoing Lender Commitments
Some lenders require keeping current accounts or having new mortgage payments automated from accounts held with them. Factor such expectations into decisions if wishing to change banks.
Updated Affordability Checks
Even for remortgages below maximum LTV ratios, lenders rerun detailed affordability assessments during underwriting. Prepare to share full financial details meeting today’s tighter criteria.
Getting timing right and having paperwork ready avoids hiccups facilitating smooth remortgages.
Tips for Qualifying for Remortgages
When applying for property remortgages, borrowers should optimize several areas to ensure quick preapproval at the best rates:
Improve credit rating – Having a credit score over 700 signals responsibility securing better loan terms. Pay down debts and resolve errors to boost ratings.
Reduce existing debts – Lenders look for overall debt ratios under 35-40% of gross income, so paying off loans helps qualification.
Prepare tax records – Having 2 years of tax records handy proves consistent healthy earnings meeting affordability requirements.
Gather property valuations – Formal property appraisals affirm market values backing requested loan amounts.
Stacking key financial credentials and paperwork makes for straightforward underwriting and approval processes when pursuing remortgages.
In today’s property investment landscape, remortgages offer too many advantages to overlook. Lower rates, better terms, equity withdrawal and cash flow all empower savvy owners. Remortgaging provides accessible capital to build wealth through acquiring or upgrading rental properties. And continuing to remortgage and extract equity over years, having it work for you instead of banks, leads to portfolio growth surpassing traditional buy and hold approaches. Whether new investors getting started or seasoned landlords with multiple holdings, exploring remortgage options should be part of any wealth-building financial review. The numbers rarely lie – strategic property remortgages pay dividends.