How fees, flexibility and future plans can change the real value of your next mortgage deal
When a buy-to-let mortgage deal approaches its end, the interest rate naturally attracts attention. A lower rate can improve monthly cash flow, particularly for landlords managing several mortgages. However, the rate alone cannot tell you whether a product represents good value or suits your plans.
A useful remortgage review considers the total borrowing cost, the conditions attached to the loan and what you expect to do with the property. For portfolio landlords, it should also consider how that decision fits alongside other mortgage commitments.
Start with the total cost
Buy-to-let mortgage products can combine a lower interest rate with a substantial arrangement fee. Some fees are fixed amounts; others are calculated as a percentage of the borrowing. The financial effect therefore depends partly on the mortgage balance.
Consider this simplified, fictional comparison for a £180,000 interest-only mortgage over two years. Both rates remain fixed throughout, fees are paid upfront, and all other costs are assumed equal.
| Cost | Mortgage A | Mortgage B |
|---|---|---|
| Interest rate | 4.0% | 4.4% |
| Product fee | £4,000 | £1,000 |
| Interest over two years | £14,400 | £15,840 |
| Interest plus product fee | £18,400 | £16,840 |
Mortgage A has the lower rate and lower monthly interest payments. Mortgage B costs £1,560 less over the comparison period once the product fees are included.
These figures illustrate a principle rather than available mortgage offers. The comparison changes with the balance, fees, repayment method and period involved. If a fee is added to the loan, the additional borrowing and interest must also be included.
Check what leaving your existing mortgage will cost
Before comparing new products, establish the cost of repaying your current loan. An early repayment charge can outweigh the benefit of a lower rate, particularly where a substantial balance is involved.
Check the exact charge and its expiry date in your mortgage documents. Also allow for any mortgage exit fee, legal work, valuation charges and adviser fees. Where a new product includes valuation or legal assistance, establish what is covered and whether additional work attracts charges.
Timing matters. Beginning a review early gives you time to explore options and plan completion around existing commitments. It does not mean you must complete a remortgage immediately.
Consider your plans for the property
A mortgage needs to accommodate your likely next steps. A landlord intending to retain a property for many years may have different priorities from someone considering a sale, major refurbishment or a change in letting arrangements.
A longer fixed period can offer payment certainty, but its early repayment conditions may matter if your plans change. Equally, choosing a shorter product can mean reviewing the borrowing and potentially paying arrangement costs again sooner.
Discuss overpayment allowances, restrictions on additional borrowing and any proposed change of use. If selling is a realistic possibility, tell your adviser before selecting a product. The mortgage’s flexibility should form part of the decision from the beginning.
Understand what the lender will assess
A property’s apparent profitability does not guarantee that a lender will offer the borrowing requested. Buy-to-let lenders apply their own rental affordability calculations, which may use an assumed interest rate and require rent to exceed the calculated interest by a specified margin.
The property valuation also affects the loan-to-value ratio: the mortgage expressed as a percentage of the lender’s accepted property value. A lower valuation can change product eligibility or the amount available.
Portfolio landlords may face an assessment of their wider holdings. Accurate rental figures, outstanding balances and ownership details help an adviser identify suitable routes before an application is submitted.
Compare remortgaging with staying
Moving to a different lender is one option. Taking another product with your existing lender, commonly called a product transfer, should also be considered.
The existing lender’s offer may involve fewer practical steps, while another lender may offer terms that better suit your circumstances. Neither route should be selected automatically. Compare the total cost, eligibility requirements, flexibility and any additional borrowing needed.
This becomes particularly useful when several mortgage products end close together. Different properties may warrant different solutions.
Account for differences across the UK
The core comparison of rates, fees and flexibility applies throughout the UK, but lender coverage and legal arrangements can differ.
For an English property, the adviser and conveyancer need to understand its ownership, occupation and title. In Wales, occupation contracts form part of the letting framework. Scotland has a separate property law and conveyancing system, while Northern Ireland also requires attention to its own legal arrangements and lender availability.
These differences do not create a single mortgage rate for each nation. They mean that a product available for one property cannot automatically be assumed suitable for another. Tell your adviser where every property is located and how it is occupied.
Prepare early and discuss the whole picture
NetRent recommends making contact around three to six months before your current mortgage product ends. Have your mortgage statement, product expiry date, rental income and future plans ready.
With more than 23 years of private rented sector experience, NetRent understands the practical questions landlords face. We discuss your requirements and introduce you to our mortgage partner, DNA Financial Solutions, for specialist mortgage advice and arrangements.
Our introductions also cover residential and commercial mortgages, finance raising, and mortgages for expatriates and foreign nationals, subject to circumstances and lender criteria.
Before choosing your next rate, review what the mortgage will cost and how it will serve your plans. Call NetRent on 01352 721300 or email mortgages@netrent.co.uk.
NetRent does not provide legal advice. This article represents our general understanding of the landlord mortgage market and is provided for information only.