In what has been a volatile market, landlords could be forgiven for struggling to keep pace with the variety of mortgage products available. Amongst the heat and noise, the Day One Remortgage can be overlooked but these types of remortgages are in fact growing in popularity. Used wisely, it can help landlords maximise their assets.
What is a Day One Remortgage?
A Day One Remortgage raises capital on a property after it has recently been purchased. In theory, this could be the day after purchase but in reality properties are rarely refinanced that fast.
Much depends on how quickly the property is registered with the Land Registry and currently there are long delays with registering titles. Most lenders require the title to be registered for at least six months or even 12 months before refinancing will be considered.
Who takes out a Day One Remortgage?
Many borrowers buy at auction properties that are uninhabitable or not mortgageable. Some are simply savvy landlords who keep a close eye on properties coming to market that they might have been eyeing up for a while.
Remortgage properties are purchased with cash or using bridging or development finance. Once the purchase is complete, the buyer can then remortgage. These borrowers look for a lender who will allow them to exit that original cash purchase or bridging loan as early as possible.
As a buy-to-let lender, we will only lend on habitable properties. Usually this is once the house or flat has been renovated, and is fit to let, but sometimes it can be just before, ensuring that by time the valuer goes out the property is ready to let.
As an example, a landlord buys a property at £100,000 on 1st January 2024. They carry out work to the property over the next two months which increases its value to £125,000. They then apply for a BTL remortgage.
At Landbay, we would usually lend on the £125,000 as the works have improved the property value. But we would ensure that the applicant has some of their own resources tied into the property and that the works are commensurate with the uplift in its value.
Planning is everything
To make the most of Day One Remortgages and to avoid unnecessary risks, the broker and client need to carefully plan ahead together. Brokers will advise their client that they need an exit plan to be able to pull out invested capital.
The lender needs to understand the initial purchase price. They will want to ensure there is nothing unethical about the sale (for example, a distressed vendor sale) which would preclude many lenders from lending.
If the property is in poor order, uninhabitable or lettable, the client should have a plan for how long works might take, the cost, and their target final valuation. All of this information is crucial for the broker and lender to work out an exit plan.
Many lenders will only lend on a percentage of refurbishment costs. Though there may be some flexibility on this as many landlords buying this type of property will have the skills to carry out the refurbishment work themselves.
Advantages
A Day One Remortgage allows the client to build a portfolio of properties which are refurbished and in very good order. This type of property should attract good quality, reliable tenants. Only minimal maintenance is needed because works have been completed at the outset. This sort of remortgage also allows the client to recycle the money they withdraw for investing into other, similar property purchases.
Flexibility and high loan-to-value
In March Landbay launched new five-year fixed rate products at 80% loan-to-value for both standard properties and small houses in multiple occupation, alongside a raft of further rate reductions. These can be used for remortgaging, including Day One Remortgaging.
This is good news for those landlords looking to raise even more capital, as well as those carrying out further improvements, making investments or consolidating debt.
Day One Remortgaging continues to be popular with professional landlords in particular. At Landbay, around 80% of this business comes from limited companies.
As long as a carefully planned exit plan is in place, Day 1 Remortgages can play an integral part in expanding a BTL portfolio.
Ian Hall is head of sales (North) at Landbay
