Remortgaging. It can be a royal pain in the ass! I just went through the whole debacle, from finding the right deal to getting all the monotonous paperwork filed and approved.
Fortunately, enduring the shit-storm was worth it, because after an accumulation of 5-6 hours of work, I’m now £10k better off.
How much can you save by remortgaging?
There are certain topics I absolutely despise blogging about, yet I reluctantly do it.
I do it because many of you are less tolerable to my brand of humour and the general way I express myself, and consequently feel utterly repelled when I, too frequently, blog about issues I actually do enjoy writing about, which typically involves me calling my tenants gutter-rat assholes over issues that are allegedly trivial, like when they punch huge gaping holes through the walls with the wrong tools/nails to hang photo frames. I still maintain it’s not trivial, and it’s clearly the act of a bonafide fool, despite many of the disgruntled comments telling me otherwise. In any case, there’s very little to learn from me in those posts, besides from several variations of how to call your tenant a stupid inconsiderate dip-shit.
Mortgages are one of those dry topics I have absolutely no pleasure in blogging about, because, well, it’s mortgages. Nuff said.
However, while mortgages are the arm-pit of blogging subjects, it’s probably one of the most important contributing factors of success or failure in BTL. Understanding mortgages is crucial.
So, the more informed you are on the matter, the more successful (and rich) you’re likely to be. Basically, despite how horrendously unappealing it is, I cannot avoid talking about the subject because it’s so unbelievably pivotal to being a landlord/property investor. It’s all very unfortunate.
Having recently endured the whole remortgaging process, I thought I’d share my take on the matter (which may or may not be provide some useful insight), and also encourage everyone with a mortgage to regularly look into remortgaging, because the savings can be gigantic!
First, let’s cover the basics (which may bore the shit out of seasoned landlords/borrowers, so you may want to bounce straight to the Interest rates & remortgaging at the right time section)…
What is remortgaging?
Remortgaging, or what is also known as ‘refinancing’, is a process that replaces an existing mortgage policy with a brand spanking new policy.
It doesn’t have to necessarily be with a different lender, but it most often is. In the event that the old lender is kicked to the curb, the new lender takes on the debt, which means the borrower is obligated to repay the new lender based on the terms specified in the new policy.
Why do people remortgage?
There are a couple of common reasons and scenarios:
- Most borrowers are forced to remortgage when their fixed rate (which is the introductory discounted rate) period is due to expire, because there’s no way on God’s green earth they can afford to pay the regular Standard Variable Rate (SVR).
The mortgage market is extremely competitive; lenders are continuously introducing new products with mouth-watering deals in order to win over custom.
So while many borrowers don’t *need* to remortgage, many do because they want a better deal, which can result in lower interest payments than their current mortgage plan. Further down this article, I’ll get into how much I saved by remortgaging and benefiting from lower interest rates!
Remortgaging can also serve to release equity in a property. Equity is the difference between the market value of a property and the amount the borrower still owes on it.
When a property increases in value (i.e. organically over time), equity is built.
Many of the more ambitious landlords release equity to raise capital to expand their portfolio. In fact, that’s the business model many portfolio landlords base their strategy on – they just continually release equity to buy more!
Sure, sounds fun, like a real life game of Monopoly. But can also be high-risk, because you’re increasing your debt with the more equity released, which inherently makes the business vulnerable to economic downturns.
Generally speaking, remortgaging isn’t a big deal, in principle it’s no different than switching car insurance provider because you’ve found a better rate from an alternative insurer (but with more red tape and paperwork).
The biggest mistake landlords make is NOT remortgaging
Well, the biggest financial mistake, at least.
To simply endure the lifespan of one mortgage policy without regularly looking for better deals is, well, just plain stupid. It’s a mistake that could literally cost tens of thousands of pounds!
Of course, there won’t always be better deals on the market, but during the period of 25 years (the average length of a mortgage policy) there will definitely be better mortgages available with better rates.
So why not do the obvious: transfer over to a better deal which is offering a better rate? If you’re currently enduring a rate of 5.75%, switching to a new plan that is offering 5.50% can save you thousands. Yes, a puny 0.25% can make that much of a difference.
I think that’s another problem actually; many borrowers see small percentile differences in products (compared to their current mortgage product) and assume it’s not worth switching. They fail to realise that those tiny percentages can equate to thousands of pounds in savings (or expenses) when regarding mortgages!
Where can you find the best BTL remortgaging quotes?
Honestly, I can’t recommend any one place. In fact, I wouldn’t recommend any one place even if I’d had a superb experience.
The mortgage market moves far too quickly to be “loyalty”, so loyalty will screw you over in this instance. New products are frequently being offered, so you always want to be active during your search.
If you’re in the market for a BTL mortgage, whether it be for remortgaging purposes or otherwise, I recommend looking through as many places as possible, including:
- Your local high-street banks and building societies
- Your local independent brokers
- Online BTL mortgage brokers (my preferred method).
I’ve been using and recommending Habito recently. They don’t charge any broker fees and they have access to 12,000+ BTL mortgage products (including products offered by high-street banks and building societies). They also have a 5 star TrustPilot rating from over 2000 customers.
- Mortgage comparison websites like MoneySuperMarket.com
Interest rates & when remortgaging is the right time
Will the UK interest rate rise, fall or continue to stay firm at the current 0.5% rate, as it approaches the 7 year low, in the foreseeable future?
There’s been continuous speculation of a rate rise for years and years now, but much like the circulation problems us men will all eventually face… it just won’t rise! The problem with the speculation is that it puts us mortgage holders (particularly those currently on or soon-to-be facing, a displeasing variable rate) in an awkward position, because it makes our decision of whether to stay put or get tied into a fixed rate… a little bloody difficult. I know many borrowers have locked into fixed rates based on the speculation of a rise, and I’m sure many regret doing it too early.
That said, timing is everything, and the wrong decision can be an extremely expensive mistake. No pressure. But seriously, don’t make a shit decision because you’ll end up paying through the nose, and just about every other orifice. The amount of landlords that have toppled due to poor mortgage choices is very real and excruciatingly scary.
I don’t know if I made the right decision at the right time, but I’m convinced, perhaps hopelessly optimistically, that I made a good decision last month when I locked my mortgage into a 5 year fixed rate policy. Yeah, I did it.
It’s actually the first time I’ve remortgaged a BTL policy in years and years, because as many of you will know, up until last year the products on the market have been utterly dog-shit; saturated by ‘deals’ that look OK at a glance, but eye-wateringly painful once the ‘admin fees’ are taken into consideration.
The fees literally made remortgaging pointless/unbearable, it was an absolute joke. So-much-so that I begrudgingly remained on a pretty unattractive variable rate for much longer than I would have ideally liked to have been, but that was better than the alternative. It made more sense to remain on a 4.79% rate rather than moving onto a product that was ‘masquerading’ as a good deal with a 2.9% rate, because most of those products came attached with a 2% product fee (or a rate equally as ridiculous). It was like undressing an unbelievably attractive lady only to unexpectedly find a huge, pulsating erection in-between his/her legs. Hello summer break 2010, Thailand. What a terrible state of affairs.
I’m sure many of you were, or still are, in a similar situation and are equally as frustrated by it. About the product fees, too. Yes, I’m hilaarious.
My experience with remortgaging my BTL
Why remortgaging was a pain in the ass (but still worth doing)
So yes, I recently remortgaged my BTL policy, so it might be beneficial to share the trials and tribulations of my experience!
Long story short: bouncing from one lender to another was a massacre.
I’ve already briefly touched on the pains of remortgaging in today’s climate in a previous blog post, where I mentally-ejaculated over the paperwork required to complete the mortgage application process. At that point, the mortgage hadn’t even been officially approved, but I was already feeling drained and lifeless by the bureaucracy of it all.
I swear BTL remortgaging never used to be this difficult (I’m speaking comparatively here, so don’t jump down my throat for being a prissy little drama-queen, even though I probably am one). The extended and drawn-out paperwork only accounted for a small part of what made the process a pain; the prerequisites of an applicant has become significantly more demanding than it used to be, that’s for sure.
Don’t get me wrong, I get it. After the snake-oil bankers burned the UK economy to the ground during the first decade of the new millennium by throwing money at practically every Tom, Dick and Harry that applied for a loan, something had to be done- the lending criteria needed to be strengthened. But, fuck-me-sideways, from my most recent experience, it proved to be a challenge for someone even as qualified as myself, who comes attached with a perfect credit rating, an adequate loan to salary ratio, a penis the size of a party sausage, and a several year history of timely mortgage payments. Alas, my lender simply wasn’t interested in 99% of the perks I bought to the table.
If you’re one of those people that hasn’t had the pleasure of remortgaging recently but plan to, expect the following (at least from Natwest, other lenders may work slightly differently)…
Lengthy application process
Completing the mortgage application, face-to-face with my broker, took the best part of 3-4 hours (bear in mind this was just completing the application form). It never used to take that long. It wasn’t a comfortable experience, to say the least.
If you’re anywhere near as frigidity and restless as I am, it will be hopelessly agonising. I lost count of how many times I lost the will to live and my ass became unpleasantly numb.
There was a lot more reading and processing involved (i.e. paperwork) than any other time I had remortgaged. I think that’s primarily because of the strengthened screening process, and because of the whole PPI scandal, so now brokers have to walk us through every clause, or at least watch us ‘pretending’ to.
The paperwork has raised its game in stupidity and almost doubled in quantity. I don’t even know what I signed or why. But you shouldn’t do that, you should read everything properly :)
Rental income no longer basis of loan
It was so freaking easy when I applied for my first few BTL mortgages back in the day; lenders didn’t even care about my salary, it wasn’t even taken into consideration. The entire loan was based on the rental income of the property. Unfortunately, that ship has sailed, they couldn’t give two shits about rental income anymore.
The eligibility of a BTL mortgage is similar to that of a residential mortgage now; it’s almost entirely based on two years’ worth of net income and the value of the property. That instantly makes the process horrendously more difficult.
That change immediately caused problems for my specific circumstances because I had recently changed my employment/company status (e.g. from sole-trader to Limited), which meant I didn’t have two years’ worth of records under the same ‘entity’ – for some reason that caused all kinds of bullshit problems. I’ll spare you from the details.
Granted, this new lending policy actually makes sense to me, but it’s a massive change, which has added a barrage of new obstacles.
Rental income cannot contribute towards net income (even if it is your salary)
This blew my mind. This actually didn’t make any sense at all.
Natwest’s BTL products are currently only available to those with a minimum net income of £25k.
A significant portion of my rental income accounts for my ‘annual net income’, but my lender (Natwest) doesn’t take rental income into consideration, not in any shape or form, it’s completely excluded from their calculations. What the fuckitity fuck? I’m told many lenders follow the same guidelines these days.
Fortunately, my grubby little fingers are wedged deeply into a few other pies which contribute towards my net income, enough to pull me through.
I didn’t ask, perhaps I should have, but how do full-time landlords actually qualify? Can they even qualify? Baffling and worrying.
Bank Statement Analysis
This was a little weird and alarming. I’m not sure if this was normal practice or if I was bent over and my human rights were violated.
My broker said the underwriters’ needed an analysis of my monthly expenses. This involved my broker going through every transaction for 3 months’ worth of my bank statements and noting down the ‘type’ of transaction for each one e.g. income/salary, utility bill, grocery bill etc.
I guess it’s one way of assessing whether I live with in my means, and a good way of stress-testing my finances. But still, it seemed a bit too invasive, but they had me by the balls, and my hands were tied. I reluctantly played nice while my broker quickly became aware of just how many fetish based porn websites I’m paying a premium membership for. He felt embarrassed, but didn’t shy away from asking for recommendations.
Be warned, any embarrassing purchases may make for an extra unpleasant experience.
This wasn’t so much of an issue for me because I invested years ago and luckily benefited from sky-rocketing property prices. I also avoided putting down flimsy deposits. Bear in mind, the less equity you have in a property, the more vulnerable you are to economic fluctuations e.g. interest rates.
In any case, while you used to be able to access good deals with as little as 10-15% equity/deposits, that’s definitely no longer the case. From what I noticed, the best products available in today’s market requires a 60% loan-to-value ratio.
In reality, most landlords don’t have a pot to piss in, let alone the luxury of 40% equity crammed into their investments, so that instantly makes the majority of us unqualified to even apply for the best products, let alone apply with hope and then get rejected.
Depending on your situation, it may even be worth clearing some debt to qualify for the better deals. Perhaps a smart option to consider.
Mortgage payment history means nothing
This point isn’t really a change in policy, because it wasn’t relevant back in the day even when BTL mortgages were more forgiving. This is more of a moan/gripe of mine.
There were times when I thought I wasn’t going to be a successful applicant, especially when it came to light that my change in employment status could cause complications. I think I allowed my broker to get into my head, because he kept muttering shit to me, reinforcing how I needed to convince the underwriters’ that I won’t be a catastrophic liability. He made them sound unreasonable.
During my panic, I unleashed a list of my “good qualities”, hoping it would sway the decision in my favour. I told my broker I haven’t missed a single mortgage payment for multiple mortgages in several years, hoping he’d scribble down a note in the “extra comments” box in my application form (i.e. “this guy is a proven reliable payer. Handsome, too.”) and that it would count for something!
Yeah… well, NO! He basically told me that the underwriters don’t give a damn about any of that. Apparently mortgages aren’t like Credit Card applications, where credit history is everything. Who knew?
You’d think a proven track record of consistent mortgage payments would carry some punch. Wishful thinking, apparently.
I guess what I’m trying to say is… remortgaging a BTL ain’t no joke anymore. It’s tough out there.
Why I fixed for 5 years and why now!
Does anyone actually care? Probably not. I’ll divulge anyways…
In the current climate, assuming it makes sense to remortgage, I believe fixing for 5 years is the best option (or at least it was back in Nov/Dec 2015 when I remortgaged). Of course it may differ for each individual case, but generally speaking I think it’s the sensible move right now…
Interest rates can’t get much lower
The UK base rate is currently halt at 0.5%, and it’s extremely unlikely to sink any lower unless the economy fumbles into meltdown.
My gut instinct tells me that once the rate starts to rise (which it inevitably will), it will continue gaining momentum in one direction. I think it will happen in the next year or so. On that basis, being on a variable rate is a scary prospect, especially if you’re already on a rate that’s difficult to digest. I even believe fixing for 2 years is a little risky right now, despite there currently being VERY handsome 2 year products available, because by the time 2018/19 swings around, I suspect interest rates would have increased enough to cause concern when thrown onto the SVR.
It’s probably worth mentioning that in December 2015, the US central bank ended a seven year hold on interest rates with a 0.25% increase. It’s a tiny shift, but many speculate (again with the whimsy speculation) that the increase on the other side of the pond may influence our base rate. Either way, even if the base rate lowers, it can’t possibly be by much.
Reasonable 5 year products available
There are (or at least were) some comparatively sweet deals available at the time I bit the bullet. Incidentally, rates have slightly increased across the board over the last few months, so evidently I pounced at a good time. Having just looked over Natwest’s current products, I can see the mortgage policy I obtained has been dragged off the shelf and replaced with a higher-rate product (increased by 0.2%). But there are still good deals around.
I was actually eyeing up the market for a few years before committing. I have vivid memories of experiencing anxiety attacks in the form of breathing difficulties and erectile dysfunction because I was scared by the speculating chatter of increasing rates back in 2013. But as said, due to the insane product fees, I decided to gamble on sitting tight. I patiently waited for a deal that grabbed my attention to come along.
My previous rate was a little scary/unstable
Before remortgaging I was on a 4.79% rate, which was my lender’s SVR. That’s not an absolutely terrible rate, but it’s not great either. But it could easily become unbearable. If/when the rates do start to climb again, you can bet your bottom dollar on the fact that most lenders will quickly readjust their SVR accordingly.
It’s not totally unreasonable to assume that the base rate will climb by a couple of percent in the next few years, at which point I’d probably be on a 6-7% rate! OUCH! That prospect was worrying me for a few years.
So, since I do believe rates will climb in the next year or so and there are reasonable 5 year deals available, it made sense for me to make the move.
I like planning ahead
I’ve already made it clear in a previous blog post that I’m a first-class pussy when it comes to risk. I like risk to be minimised in most aspects of life. I’m a low-risk landlord.
Fixing for 5 years is a comparatively safe option because it means I know exactly how much I’ll be paying for the next 5 years. That’s a pretty satisfying feeling for a massive pussy like myself.
Old Vs New Mortgage (and the savings I’ve made)
Here’s an overview using approximate figures of my old and new policy, highlighting the positive impact remortgaging has had for me…
Lender: Initially Northern Rock, but then taken over by Virgin
Outstanding balance at time of remortgage: £90,000
Loan period remaining at time of remortgage: 16 years, 5 months
Rate: 4.79% (SVR)
Minimum monthly payment: £680
Total I’ll repay over full term (based on current rate): £130,500
Loan amount: £90,000
Loan period: Reduced to 16 years
Product Fee: £0
Rate: 3.79% (5 Year Fixed)
Minimum monthly payment: £633
Total I’ll repay over full term (based on current rate): £121,500
Broker Fee: £0 (I went directly through Natwest, didn’t use any third party)
Legal Fees: £0 (Natwest took care of all the legalities)
Survey Fee: £0
Application Fee: £20
Almost 3 months is how long the process took, but I’ve probably aged by 20 years during that time.
I’m now a proud owner of a spanking new mortgage, which weighs 1% less. That means I’ll be making a 10k saving over the duration of the loan (I’m basing my calculations on a static rate of 3.79%, even though it won’t be) and paying £50 less each month. I would say I can’t complain, but that’s all I’ve really done.
If the time and effort I put into remortgaging is condensed into a single unit, I’d estimate that I invested 5-6 hours to achieve the 10k saving. Plus, a little added emotional stress, which left me scared, unsociable, often intoxicated, and generally insufferable.
While the figures alone show why remortgaging can equate to extra profit with relatively very little work, it doesn’t compare to how much value I put on the luxury of knowing exactly how much I’ll be paying for the next 5 years without having to worry about any economic fluctuations. I just don’t trust the economy right now, there are just too many volatile external factors.
Yes, BTL remortgaging isn’t as easy as it once was, and it probably never will be again. Yes, a lot of the bureaucratic paperwork is total garbage, and the entire process can feel suicidal, especially if you’re dealing with cowboy Solicitors (who often cruise along at snail-pace, which is very annoying) and/or unforeseen complications, but it can be entirely worth it.
lastly, I just want to clarify, my experience with Natwest was very positive overall. I can’t fault my mortgage advisor, he was extremely gentle and loving with me. He was clearly doing everything in his powers to make my application a successful one, and I couldn’t ask for more. However, the general process of remortgaging has a lot to be desired. It was Hell on earth.
LOOK INTO REMORTGAGING – see how much you can save!
What’s my unqualified advice? If you’ve got any type of mortgage, you should look into the possibility of remortgaging at every available opportunity, because you could end up saving a buttload. Maybe even more than £10k!
You could even find a worthwhile deal with your current lender which you can switch over to, at which point the entire process should be infinitely easier.
Well, that’s my thoughts/experiences summed up for my most recent adventure. I guess most you can already imagine where I’ll be investing that extra £50 I’ve started to bank each month. ON YOUR MUM.
God, that was a terrible joke on every level. I feel 16yrs old again.
What are your thoughts? Have you got any mortgage related experience(s) to share? Have you recently remortgaged? Are you thinking about it? Have you been inspired to look into the prospect of remortgaging? Did my mum joke offend you?
If anyone actually does take action in light of my experience, please let me know the outcome! I do love a happy/wet ending!
Final notes on remortgaging
Fixed terms / Early exit penalties
Most mortgage policies have a tie in period which needs to expire before being able to remortgage without being penalised. The majority of lenders tie you in for a fixed term of 1-5 years.
If you’re not sure of where you currently stand, check your policy or call your lender.
You can get mortgages with no tie in, which is usually referred to as “no overhang”
Check with your current lender
Before switching to a new lender inform your current lender about your intentions of remortgaging because they may offer you a better deal in an attempt to keep your custom.
Shopping around is the key
Don’t limit yourself to one mortgage broker or a few high street building societies and banks; have a thorough look around.
Remortgaging can incur various admin fees, so take ALL fees into account while weighing up your options, because you might not be saving as much as you think.
Understand your mortgage policy
Make sure you understand every detail about your mortgage policy. A few of the important issues are the tie in periods, the penalties for early repayments and the interest rate changes. Soak it all in like a sponge before you sign anything.
Start looking for a new policy advance
It’s recommended to start looking for better mortgage deals 3 months before your fixed term expires so there’s plenty of time for a smooth transition.
Don’t feel like you need to use a mortgage broker. I didn’t, and it worked out just fine. All I did was go onto a few mortgage comparison websites and looked on the lenders’ websites directly (e.g. Natwest).
I think it’s a common misconception that brokers have access to the best deals on the market, because they often don’t.
However, if you have a particularly complex case and/or would prefer guidance, a broker could be useful. But be wary of their fees; some brokers charge a fee, while others just take a commission from the lender so you don’t have to pay. Another point to be wary of is that some brokers are limited to which products they have access to, so you might actually have access to wider range of products if you go it alone.
Disclaimer: I'm just a simple landlord blogger, I am not qualified to give legal or financial advice. Any advice I give is my opinion based on my experience, and is never legal or professional advice. You should always get professional advice on any legal and financial matters!