Beat Remortgaging rush before April's tax changes

Beat Remortgaging rush before April's tax changes

If you own a property or properties which you let out, you'll know how important it is to keep your outgoings to a minimum so that you can hang onto as much of your rental income as possible.

Remortgaging is one of the most effective ways to reduce costs and make the best of the available yield, and with interest rates at record lows, you could potentially save yourself hundreds of pounds a month by switching to a new deal.

Tax changes announced in the 2015 Budget which are due come into effect in April 2017 make it even more important to ensure that you're not paying more than you need to for your mortgage.

Under current rules, landlords can claim tax relief on their mortgage interest payments, with higher rate (40%) and additional rate (45%) taxpayers able to claim at their highest rate. But new rules being phased in gradually from April mean that by 2020, tax relief will only be able to be reclaimed at the basic rate (20%) regardless of the rate of tax you pay.

New tougher lending rules were introduced at the beginning of this year. The new regulations mean that landlords may not be able to borrow as much as they need or will have to increase the rents they charge tenants, so it makes sense to get advice on the individual circumstances.

Check your current deal first

Before remortgaging, it's vital to check that there won't be any early repayment charges to pay when you switch away from your existing deal, as these could potentially wipe out any savings you make.

If you are currently on your lender's standard variable buy-to-let mortgage rate, then there won't usually be a penalty to move, but it's best to confirm this with them. Once you know you're free to leave, make sure you compare plenty of different buy-to-let deals so that you can find the best option to suit your individual circumstances.

Decide what type of remortgage deal you want

A mortgage broker will be able to talk you through all the choices available to help you decide which remortgage deal to go for. For example, if you want peace of mind that your monthly mortgage costs won't change regardless of what happens to interest rates, you may want the stability of a fixed rate mortgage.

If, however, you are confident that interest rates will remain low for the foreseeable future, you may be happy to go for a variable buy-to-let mortgage. Variable rate options include discounted rates, whereby a lender offers a discount off their buy-to-let standard variable rate for a set period of time, and tracker deals, whereby your mortgage rate tracks the Bank of England base rate plus a certain percentage.

Work out the overall cost

When weighing up which buy-to-let deal to remortgage to, make sure you work out all the costs involved. These include any mortgage arrangement fee, valuation costs and legal fees.  Never base your decision on the interest rate alone as, depending on how much you need to borrow, it may sometimes be more cost effective to go for a buy-to-let mortgage with a higher rate, a lower arrangement fee and a free valuation than one with a lower rate but a steeper arrangement fee plus the cost of a valuation.

Check you fit lender criteria

You will need to gather together all the information lenders require when you submit your buy-to-let remortgage application. Lenders are getting stricter about who they will offer buy-to-let mortgages to, so while they used to need to see proof that the rent was at least 125% of the monthly payments, some have now increased this to 145%. They will also apply tougher 'stress tests' to ensure that landlords will still be able to afford their mortgages if interest rates increase in future.

Remember that certain lenders will also want to see proof that you earn a minimum annual income before they will let you remortgage, as evidence that you will be able to cope financially during 'void' periods when you do not have a tenant to rent out your property.

Using a mortgage broker can help you navigate all these issues to come up with the best solution and help you reduce the mortgage costs on your Buy to Let properties.