Steps to Securing the Right Buy to Let Mortgage
29th Nov 2023
In recent weeks, we have been attending the excellent NRLA On Tour events, which have featured a great range of topical and relevant information for landlords. At these events, we have presented our own buy to let market update, helping property investors to stay ahead of the game and make sure they are best placed to get the most value from their investment.
Building on the article we wrote on how to be document ready, which you can read here, we thought it would be useful to provide some more helpful guidelines. Depending on your circumstances, some of these may or may not be relevant specifically to you, but it’s worth taking a moment to consider different scenarios so that you can be well prepared.
There are two main scenarios to consider. The first is if you have a buy to let mortgage product that is due to expire in the next six to 12 months, and the second is if the soonest expiration of a buy to let mortgage you hold is longer than 12 months away.
In both scenarios, the most important message is not to rest on your laurels. It seems as though we are reaching the top of the cycle of Bank of England Base Rate increases, but it’s important to remember that fixed rate mortgages are not priced on Base Rate, but SWAP rates.
SWAP rates essentially indicate the rate at which financial institutions lend money to each other, taking into consideration both the current Base Rate and expectations for future interest rate movements. They have a more direct impact on the cost of funds for mortgage lenders and, as such, are of greater relevance to the pricing of your fixed rate buy to let mortgages.
The thing to remember about SWAP rates is that while Base Rate may move up and down in a fairly linear way, with decisions made by the Monetary Policy Committee on a regular basis, SWAP rates are determined by market movements and can change daily, moving up and down frequently. So, even if Base Rate is steady, or even falling, SWAP rates can oscillate.
As soon as your current buy to let mortgage product has six months before expiration, you should be ready to move, so speak with your broker early to research the market and ask them to secure the best rate that is available to you, be that a product transfer or a remortgage to a new lender. Some lenders will allow you to switch mortgage product up to two weeks before completion and some may charge for this, while others may not allow it, so check with your broker.
If you are able to switch mortgage deal further down the line, securing a rate now acts as an insurance policy should rates change in the coming months, especially if the markets become spooked again and SWAP rates rise. As you approach the expiration of your current mortgage, your broker can then revisit the market to see whether you would benefit from switching to another rate available at the time or would be better off sticking with the deal they had previously secured for you.
We are seeing quite a lot of product innovation in the buy to let mortgage market at the moment, with many lenders introducing larger product fees to reduce the stress rates. We’ve also seen the introduction of 5-year fixed rates with 3-year Early Repayment Charge (ERC) periods or lower ERCs in the first year. There’s a lot of choice and it’s important to consider your product selection carefully. For example, at 3mc, whereas 85% of the buy to let mortgages we arranged leading up to September 2022 were on a 5-year fixed rate, since September, 48% have been taken on 2-year products. And remember, a lender Decision in Principle (DIP) doesn’t necessarily secure the product.
For those landlords whose earliest buy to let mortgage expiration is longer than 12 months away, there are still things that you can be doing to ensure you are prepared. First, check that you are charging the current market rent achievable on the property. Rightmove has recently said that rents have reached a new record high, with an average of 25 enquiries for every rental property. Increasing the rental income earned on the property will make it easier to secure a mortgage on it in the future.
Also, think about the EPC rating of the property. While proposals for a minimum EPC of C on rental properties have been withdrawn, there are lenders that will reward those properties with EPC ratings between A and C, so check with your broker to see whether you could benefit from this when it comes to looking for a new mortgage.
At the very least, you should be documenting the EPC rating and mortgage expiry dates on all of your investment properties, with a diary reminder to speak to your broker six months out from each expiration date.
And don’t forget to be document ready! For more information on how you can do this, take a look back at our previous blog.
By taking these steps, you will give yourself the strongest possible chance of securing a mortgage with the best rate for your circumstances and give yourself options should the market retract again in the future.
It’s highly recommended to seek legal advice, and stay up to date with changes in UK landlord and tenant law. You could consider joining a landlord association such as the NRLA to help you stay compliant, save time and stress, save money, and ultimately help see your rental business thrive. Read more about the NRLA.
This information is a general overview and not exhaustive, so be sure to conduct further research or consult legal professionals for specific guidance based on your situation, location, and circumstances.
At 3mc, we have a team of expert advisers who can discuss all your mortgage requirements. If you would like to discuss your options, give the 3mc team a call on 0161 962 7800.
All calls are recorded for training and monitoring purposes. 3mc for intermediaries only.
*Your home may be repossessed if you do not keep up repayments on your mortgage. 3mc (UK) Ltd is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register https://register.fca.org.uk/s/ under reference 302992. Please note: The FCA do not regulate Business Buy to Let Mortgages.