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Property experts specializing in the buy-to-let sector have disclosed several lesser-known strategies that landlords can employ to significantly reduce their mortgage expenditures, potentially saving thousands annually. With approximately 190,000 buy-to-let mortgages, totaling over £26 billion, slated for renewal this year, these insights are particularly timely as many landlords confront substantial increases in their monthly payments.
Expert Tips to Reduce Buy-to-Let Mortgage Costs
Landlords facing mortgage renewal are bracing for considerable financial adjustments. The most pronounced cost escalation will impact those who secured mortgages five years ago, with potential monthly payment surges estimated at around 70% for remortgaging this spring.
Financial analysts at Moneyfacts Compare indicate a stark contrast from April 2020, when the base rate was at a historic low of 0.1%. At that time, the average five-year fixed-rate buy-to-let mortgage was priced at 3.16%. Current figures show this rate has climbed to 5.37%, highlighting a substantial shift in borrowing costs for property investors.
Illustratively, a £150,000 interest-only mortgage at 3.16% would previously cost a landlord £395 per month. However, at the increased rate of 5.37%, the monthly outlay escalates to £671. To assist landlords in mitigating these rising costs, buy-to-let specialists offer the following advice on reducing remortgage expenses:
Tip 1: Optimize Your Property’s Energy Performance Certificate (EPC)
Ensure your property’s Energy Performance Certificate (EPC) accurately reflects its current energy efficiency. An up-to-date EPC can be a crucial tool for landlords seeking to lower mortgage rates.
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All rental properties are legally required to possess an EPC, which grades energy efficiency on a scale from A (most efficient) to G (least efficient). Current regulations mandate a minimum EPC rating of E for privately rented properties, with a stricter target of C set for 2030.
Significantly, some mortgage providers offer preferential rates for properties with higher EPC ratings (A or B). For example, Barclays’ Green Home plan offers a reduced remortgage rate of 4.57% compared to their standard 4.8% rate for qualifying energy-efficient homes.
Jason Wilde, Head of Sales at Paragon Bank, advises landlords to consider recent property upgrades: ‘If you’ve undertaken improvements, even minor ones like installing energy-efficient lighting, commission a new EPC assessment. This could potentially elevate your property’s rating from a D to a C,’ he suggests.
A recent survey by Paragon Bank revealed that a significant 57% of landlords neglect to update their EPCs after completing property enhancements.
Landlords are also encouraged to verify the precision of their EPC by reviewing the assessor’s recorded details. Inaccuracies, such as walls incorrectly marked as uninsulated, can negatively impact the property’s score and should be corrected.
Tip 2: Maintain a Healthy Credit Profile
Prior to initiating a remortgage application, conducting a preliminary credit check is highly recommended. Identifying and rectifying any errors or inconsistencies in your credit report can positively influence the mortgage rates offered, as demonstrated by landlord Paul Fewings’ experience.
Paul, a 47-year-old landlord residing in Cottingham, East Riding of Yorkshire, manages his buy-to-let portfolio through a limited company structure.
Upon the expiration of his previous 2.95% mortgage deal, his broker identified a competitive two-year fixed rate at 5.45%. However, the lender subsequently revised their offer, citing a higher rate of 6%. This adjustment was attributed to Paul’s perceived higher lending risk due to a less-than-optimal credit score.
The issue stemmed from Paul not being registered on the electoral roll at his current address. This oversight negatively affected his credit score and the mortgage terms available to him.
The rate increase would have cost Paul an अतिरिक्त £47 per month, totaling £1,128 over the two-year term.
‘Despite recently updating my electoral roll registration after moving, the register hadn’t yet reflected the change,’ Paul explained. ‘This discrepancy meant I wasn’t appearing on the register, impacting my credit score.’
Upon providing confirmation from the local council confirming his pending registration on the electoral roll, the lender ultimately honoured the initially quoted lower rate, highlighting the importance of credit report accuracy.
Tip 3: Strategically Plan Rent Reviews
While maintaining stable rent for tenants might foster positive relationships, failing to periodically review and adjust rental rates can impede your ability to secure the most favorable mortgage terms. Rent reviews are now a crucial component of buy-to-let financial planning.
The increased interest rate environment has made passing lender affordability assessments more challenging. To qualify for a buy-to-let mortgage, landlords typically need to demonstrate a monthly rental income that is between 125% and 145% of the mortgage payment. Some landlords seeking to remortgage have discovered that their current rental income falls short of these revised lender criteria.
Remaining with an existing lender for a new mortgage deal can sometimes circumvent a new affordability assessment. However, this option is not universally available among lenders.
Failure to meet affordability criteria can lead to being placed on a standard variable rate mortgage, which can carry significantly higher interest costs, potentially reaching 9% or more. This situation may arise while exploring alternative lenders with more lenient criteria or while implementing rent increases for tenants.
Implementing substantial rent increases abruptly, such as £150 per month, carries the risk of tenant turnover, resulting in periods of vacancy and lost rental income while new tenants are secured.
To mitigate this risk, Paul advocates for conducting routine annual rent reviews, implementing incremental and manageable rent adjustments. This proactive approach enables landlords to stay ahead of evolving stress test requirements during remortgage processes without causing undue disruption to tenant relationships.
Tip 4: Organize Property Planning Documentation
Landlords who have modified their properties since their last mortgage acquisition, particularly those involving conversions or extensions, may encounter difficulties in remortgaging without providing proper planning permissions. Having all necessary documentation readily available is crucial.
Jason Wilde highlights that issues related to planning permissions are frequently observed among landlords who have converted standard buy-to-lets into Houses in Multiple Occupation (HMOs). Changes of use can trigger planning requirements.
Although planning permission is not universally required for all property alterations, certain local councils have stringent regulations mandating that all HMO conversions undergo a formal approval process. Local planning policies vary significantly.
Absence of necessary planning permission prior to remortgaging can result in extended delays, potentially lasting months, as lenders require compliance. Delays directly impact costs.
During periods of delay caused by incomplete planning applications, landlords may be defaulted onto a lender’s standard variable rate, typically less favorable, while retrospective planning permission is sought. This can add unexpected costs and disrupt financial planning.
Tip 5: Evaluate Low Rate, High Fee Mortgage Options
In response to the increased interest rate environment and to assist landlords in meeting stricter stress tests, some lenders are now presenting mortgage products characterized by lower interest rates but accompanied by substantially higher fees. These fees can often be added to the overall mortgage loan.
Opting for a low-rate, high-fee mortgage deal can serve as a strategy to avoid being placed on a higher standard variable rate if affordability test hurdles are encountered. Careful consideration is essential.
However, it is imperative to consult with a qualified mortgage broker before committing to such arrangements. Fees associated with these deals can be substantial, potentially reaching tens of thousands of pounds depending on the loan amount. Professional advice is crucial to assess overall cost-effectiveness.
For example, Molo Finance currently offers a two-year fixed-rate mortgage at 3.03%, a rate reminiscent of those seen in 2020. However, this attractive rate is linked to a significant 6.5% arrangement fee. Trade-offs must be evaluated.
On a £150,000 mortgage, a 6.5% fee equates to £9,750. Comparatively, TSB offers a 4.39% fixed rate mortgage with a considerably lower fixed fee of £1,995, illustrating the range of fee structures available and the need for careful comparison to determine the most suitable option.