Should you expand your Buy to Let portfolio by remortgaging?

Mortgage interest rates have never been lower, and this applies to Buy to Let (BTL) as well as residential mortgages. If you haven’t reviewed the financing of your BTL property recently, now is the time. You may find that you can reduce the mortgage interest costs significantly by switching to a better rate. Alternatively, you may choose to do what many other BTL investors are doing right now; remortgage, thus freeing up some equity to expand your portfolio. If you have benefited from particularly strong house price growth in the last two years, could this be a good time to remortgage your rental property?

If you are currently thinking about this option, make sure you first consider the following factors and make sure you take expert advice from an independent buy to let mortgage adviser.

Is it the right time to remortgage?
Your personal circumstances will often dictate whether it is the right time for you to remortgage. For example, if you are currently on a competitive fixed interest rate, or if you face early repayment charges for switching to another lender, it might not make financial sense to remortgage.

Before making any decision, ensure that you have all the relevant information at your disposal, such as your property’s current valuation and how much of the overall value is equity compared to the size of the loan on it. This will help you work out how much equity you can release and whether that is enough to allow you to expand your portfolio.

What about buy-to-let market conditions?
Buy-to-let is a steadily increasing market in the UK, with growing numbers of professional and amateur investors seeking to invest their cash into a market worth £1 trillion (Source: Kent Reliance)

For most landlords with a couple of BTL properties the key to success is capital growth. If the property you invest in grows significantly in value, you will increase your total profits when you come to sell it. Of course, future house price growth is impossible to predict accurately, so the ratio of the average annual rent to the average house price in any given area, known as the “rental yield”, is a good indicator of where to buy.

But where should you invest? Rising property prices in some areas of the country have reduced rental yields to levels where the returns are relatively unattractive. However, new research by HSBC, which conducts a review of rental yields around Britain each year, shows that certain towns and cities are the best places to invest at the moment. This is due to modest property price rises and strong demand for rental property by tenants such as students and young professionals.

Southampton and Portsmouth are both mentioned in the HSBC report as being in the ‘top ten’ places to invest in buy to let property.

Both cities have large student populations, demand for rental accommodation is strong and in comparison with other regions housing is cheaper. Both cities have similar levels of housing stock in private rental (around 22%-23%) and both have average house prices of just over £150,000 (below the UK national average). Southampton’s average annual rent is £10,800, giving a rental yield of just over 7%. Portsmouth’s average annual rent is £9,900, giving a rental yield of just over 6%.

Next steps
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