Remortgaging buy to let when property price has increased

[harrowgreen]

We own a property in SW London which we bought back in 2010 (mortgage). In 2012 we moved abroad so began renting it out to tenants and moved to a buy-to-let mortgage.

We've now increased our equity in the property from 15% to around 50-55% (depending on the exact figure a valuation would come back with). This is partly through paying money in, but mainly from the property price increasing: it's almost doubled in price since we bought it.

As a result, we've been looking to switch our buy-to-let mortgage to get a better deal, but seem to be caught by the rental amount we charge.

As I understand it, the rental charge per month needs to be 125% of the mortgage when interest is 6% (or some such amount, depending on the individual lender). For us, that would mean charging an extra 15% on what we already charge (and almost 12% more than the highest rental quote we've had from estate agents, including those vying for our business and therefore probably exaggerating what they could get for us) - ie. it's impossible.

It seems that the increase in property price has actually harmed our ability to get a better mortgage since the rental price for the property hasn't increased in line with the property's value.

Is this right? Is there any way around this? Our mortgage doesn't end until next summer but I'm concerned that we won't then be able to find a decent new mortgage since the property value will likely have increased again and we won't be able to raise the rental price adequately.

Thanks.

[Greengrow]

My daughter may be looking for a remortgage soon on her buy to let and may be the same issues will arise.

Don't they also count your own income in addition to the income from the buy to let in deciding if the mortgage interest is covered?

Also is the 6% set in stone? Base rate is likely to stay at 0.5% for another year so one lender has been offering 0.9% buy to let loans apparately for those with masses of equity (Virgin?) because rates are likely to be staying low so you would have thought having a stress test of assuming interest rates could reach 6% is a little on the high side although not unusual - we were paying 12% in the dim and distance past on homes loans in the very difficult bad old days.

[Needmoresleep]

There are a lot of different BTL products, all with different T&C. When we were remortgaging it appeared that the majority were only available through brokers.

It was pretty smooth. We used London and Country who were able to input our variables (equity, rent, mortgage terms, level of up-front fee, and income) into their computers and come up with something that suited us from a well known provider. Agreement in principle then only took a day, and the only real work was filling in some quite long forms. The only real cost, other than application fees, was the cost of their conveyancer and the whole thing took less than a month.

That said, and since the broker is fee free, you might then check against what your own bank will offer. Plus have a look at Virgin who seem to be buying their way into this market.

[chicaguapa]

We've just done this and in fact the lender wouldn't even lend us the full amount we'd applied for even though the rental income was higher than 125% of the interest only payment. So I'm not sure what calculations they do behind the scenes to come up with the amount they'll lend you.

That said, even though we have taken £50k out of the property and increased the mortgage by this much, the reduction in interest rate has meant the interest only payment is less than it was before on the lower mortgage.

[Greengrow]

At least you got a lower rate chica so I suspect it will be worth most people shopping around too. I think my daughter is paying 4.49%.

[harrowgreen]

We've actually ended up going through our financial advisor who has advised us to switch to an interest only mortgage and shopped around a bit for us on better deals. Should save us about £1k a month which is handy :)

greengrow - the 6% was a ballpark but the wording is generally that they will look at 125% of your interest rate or 6%, whichever is higher. So even if you get a good interest rate, you're not assessed on that for the 125%.