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How to Release Equity Through Remortgaging

How to Release Equity Through Remortgaging

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Remortgaging is a popular choice with homeowners for many reasons. Whether to carry out a renovation project, clear off debts, or pay for a new car or holiday, remortgaging can be a simple way to release equity and free up capital.

Here we cover all the essential information you need to know before applying for a remortgage, as well as alternative lending options to consider.

If you would like to fast track your remortgage application or have expert support in identifying the most competitive deals on the market, contact the Revolution Brokers team on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk.

How is a Remortgage Different From an Equity Release?

When you remortgage your home, you take out a new mortgage on a property, with the new product repaying the balance on the existing lending. The new mortgage then takes over, usually with a more competitive interest rate.

Many people also remortgage to borrow extra cash against their property by leveraging their equity. Your equity is the difference between the value of your home, and the balance left on your existing mortgage.

There can be extra costs to think about, such as paying administration fees, and sometimes early exit charges if there is a clause within your current mortgage agreement.

Given the costs and long-term nature of a mortgage, it is always advisable to ensure you have a clear understanding of all the costs and considerations so you get the most cost-effective product.

Equity release plans are not quite the same as a remortgage, so if you are looking to compare your options, give us a call, and we will recommend the best solution.

How Can I Release Equity Through Remortgaging?

By taking out a new mortgage, you release equity by borrowing more than you currently owe, but less than your property is worth.

To work out how much equity you own, you can:

  • Estimate the market value of your home (this will be verified by valuation as part of the remortgage process).
  • Deduct the balance left to pay on your mortgage.

Lenders will have several criteria, so they will want to check:

  • The purpose of the equity release.
  • How much equity you currently own.
  • Whether you can afford the repayments.
  • If you have any credit issues to bear in mind.

Is a Remortgage Better Than a Secured Loan?

Secured loans are a type of second mortgage or an additional loan whereby you keep your existing mortgage and need to make a second repayment each month against the new borrowing.

The right option for you depends on how much you want to borrow, what for, and the circumstances around your application.

Here are some quick explanations of the different types of borrowing and what they mean:

Traditional Remortgage

This is a new mortgage, where you take out a new loan usually with a new lender, and swap your lending to the new provider. You can also increase the total mortgage value to release equity and free up capital.

Secured Loans vs Remortgages

A secured loan is also referred to as a second charge mortgage. It can be an alternative to a remortgage if you don't wish to move from your existing provider, or your circumstances make a remortgage more complicated.

For example, suppose your mortgage has heavy exit penalties or a very competitive interest rate. In that case, you might save money by sticking with your current provider, and releasing equity through a new, separate, loan.

Secured loans are also viable if you can't refinance because you have an interest-only mortgage, or because you have issues that make it hard to meet eligibility requirements - for example, bad credit issues, or a variable income.

Second loans can be more expensive, but you can usually borrow a higher amount, and enjoy more flexible application terms.

How Much Equity Can I Release Through a Remortgage?

Remortgages are a standard product, and you can apply through most mainstream lenders. Each will have eligibility requirements, so the right lender to apply to depends on your circumstances.

Usually, a lender will extend an offer capped at around 75% - 85% of the value of your home (i.e. Loan to Value or LTV). If your reasons for raising capital meet with the lender's policy, you can even borrow as much as 90% LTV.

In some cases, you can achieve a 100% LTV, although this is a specialist product and usually carries higher interest rates than you'd pay on a smaller remortgage, or through a secured loan.

How Do I Apply for an Equity Release Remortgage?

Generally, remortgaging is more straightforward than your first mortgage application. However, it is worth consulting a broker if your circumstances have changed since you took out the initial borrowing, as this might impact the lenders you should aply to.

These are the typical steps to a remortgage application if you wish to release equity in your home:

  • Work out how much equity you own, and then decide how much you wish to borrow - this will be the existing mortgage balance, plus the cash you want to raise.
  • Make sure you can afford the repayments. Most lenders will lend up to four or five times your annual income, although in some scenarios they can lend up to six times.
  • Consult an expert remortgaging broker, who is independent and whole-of-market and can therefore recommend the best products for you, without any limitations on which banks or providers they can work with.
  • Complete the initial information forms - this will include things like your ID, providing proof of your income, and details of your existing property and mortgage.
  • Let your broker work through the initial application, and then come back to you with an agreement in principle.
  • If you are happy with the offer, instruct your broker to proceed with the full application. You will also now need to appoint a solicitor and arrange the property valuation.
  • Once the lender’s underwriter has signed off the application, and the property has been valued, you will receive a formal offer to lend.
  • You then pass this to your solicitor to complete the legal requirements and organise the release of your cash.
  • The capital is paid to the solicitor, who will repay your existing mortgage and transfer the balance to you.

How Quickly Can I Remortgage a New Property to Raise Capital?

Generally, you need to have owned your property for at least six months before you can remortgage to release equity.

In some cases, you can apply for a Day One Remortgage, which is available in situations such as remortgaging an inherited property or to buy out a proportion owned by another person.

What are the Eligibility Requirements for an Equity Release Remortgage?

Every lender will differ, but they will all look at these critical criteria:

  • The equity owned in the property.
  • Your age - some lenders cap remortgages at age 75 or 85, whereas others have no age limit.
  • Your income and employment to ensure you can afford the repayments.
  • Review of your credit history - if you need a bad credit remortgage, this is best applied for through a specialist lender.
  • How much you wish to borrow - there are rules around loans over £500,000, £750,000 and above.
  • What sort of property you own, and when it was built.

Is There a Minimum Equity I Need to Get a Remortgage?

There isn't a minimum, per se, but the more equity you own, the easier it is to apply for a remortgage and the more lenders you will be able to choose between.

Most mainstream lenders will remortgage with a cap of 75% LTV for an equity release, some will lend up to 85%, and niche lenders can offer up to 90% of the property value depending on the application specifics.

How Much Capital Can I Raise Through a Remortgage?

The amount you can borrow depends on how much your property is worth, how much equity you own, and what you want to raise the capital for.

Each lender has its own criteria, based around:

  • Affordability calculations.
  • Acceptable remortgage reasons.

How is Affordability Calculated in a Remortgage Application?

The stringency of affordability criteria will vary significantly between lenders. Some are happy to include any bonuses or commissions when calculating your annual income, whereas other providers will only consider your basic wage.

Usually, you can take your annual income and multiply that by four to get a rough idea of the maximum remortgaging limit.

That said, Revolution works with lenders who offer more generous calculations, and can lend five or even six times your income, as long as you meet their other lending policies.

You should include any other debt in the calculation, as a lender will need to deduct these from your salary to arrive at the maximum they can lend. If you are remortgaging to consolidate or repay other debts, most lenders will disregard those debts in the affordability calculations.

Most mainstream lenders offer no flexibility outside of their criteria, so if you don't tick a box, then they can't lend more to you. Hence, it being vital to work with a broker who can recommend the right providers to apply to.

Can I Borrow More on a Second Mortgage Than on a Straight Remortgage?

Possibly - since secured loans or second charge mortgages are available with less strict affordability rules.

How Much Does my Reason for Borrowing Impact How Much I Can Apply For?

Lenders have different policies about what they can lend for if you are remortgaging to raise finance.

Here is an indication of what sort of LTV you can borrow, depending on what your reason is for releasing equity, and depending on what kind of lender you apply to.

Reason for Equity Release Remortgage

Maximum LTV Through Mainstream Lenders

Maximum LTV Through Specialist Providers

Consolidating debts

80%

90%

Home renovations

80%

90%

Simple provider switch

90%

95%

Purchase of home products

80%

90%

Purchase of a vehicle

80%

90%

Pay education costs

80%

90%

Pay medical costs

80%

90%

Other personal projects

80%

90%

Buy out a shared ownership

90%

90%

Invest in a self-build property

75%

80%

Invest in a second home

80%

90%

Invest in a holiday home

80%

90%

Invest in a new freehold or lease extension

80%

90%

Invest in a share of freehold

80%

90%

Invest in land

80%

90%

Invest in shares, savings or stocks

N/A

90%

Invest in a business

N/A

90%

If you need to raise a specific amount of finance and are unsure about the total you can borrow, call Revolution on 0330 304 3040 and we will run through the options with you.

Are There Equity Release Remortgages for Buy-to-let Properties?

Yes, if you want to remortgage an investment property, lenders are offering this product.

Rates and terms all depend on:

  • The size of your property portfolio.
  • Whether you own it as an individual or through a registered company.
  • How the rental income stacks up against the mortgage payments.

Can I Apply for a Second Charge Loan on a Buy-to-let?

It is possible, but may not be the best option. If you remortgage a BTL property to raise capital, it is often more expensive than leaving your current mortgage in situ and applying for a second charge mortgage through a buy-to-let provider.

Secured loans against BTL properties tend to be less stringent when it comes to credit check requirements, and you will find more lenders who will accept your application even if you have had severe credit problems recently.

Maximum borrowing amounts are also typically higher with BTL lending because the rental income is the most important criteria. However, higher borrowings with less robust eligibility criteria do mean interest rates and fees are often higher.

What are the Alternatives to a Remortgage?

There are multiple alternatives to remortgaging - and these are worth exploring if you aren't keen on a remortgage, have a reason to stick with your existing product, or have found it challenging to be accepted for a remortgage application.

Here are some of the most popular alternatives:

Second Charge Mortgages

Second charge mortgages (also known as secured loans or homeowner loans) work as a mortgage by securing the debt against the property but are in addition to your existing mortgage.

This is often a wise choice if your mortgage carries steep early exit charges, or has rates you can't get on the current market.

Secured loans are a viable alternative if you have been rejected for a remortgage since the criteria are usually more flexible. You can borrow as high as ten times your annual income, and even if you have credit issues that mean you cannot secure a remortgage.

For more information on the pros and cons of second charge mortgages, get in touch with the Revolution team on 0330 304 3040.

Personal Loans

Remortgages are often an option instead of a personal loan - and there are advantages to both.

Personal loans are favourable, in that they aren’t secured against your home, so if you struggle to keep up with payments, you are not putting your property at risk. However, you can expect to pay higher interest rates than on a remortgage or secured loan.

Most unsecured loans are available up to £25,000 as a maximum, with the most extended term being seven years. That does mean that repayments will be higher than if you were to borrow the same amount over a longer mortgage term.

Bridging Loans

Bridging loans are ideal for short-term borrowing, which is expected to be repaid quickly. For example, if you need capital fast, and plan to repay it shortly.

One common scenario is if you have a problematic credit history, but expect it to improve soon. Another is where you have variable income streams, or haven’t yet filed enough years worth of accounts to be accepted for a remortgage, but know that in a few months you will be able to reapply.

In these situations, a bridging loan can work provided you know when and how the bridging loan will be repaid - for instance, if you are remortgaging to renovate and resell a property.

Bridging loans are only a short-term option since the rates are higher. This is common with developers and investment landlords, who take out bridging finance to buy a property quickly, which is ideal in competitive markets and where buying a property at auction.

You should always be clear on the total costs, including fees and administrative charges, and the pros and cons of a remortgage and a bridging loan.

For further information about whether bridging finance will be right for you, get in touch with the Revolution Brokers team.

Can I Remortgage as a Business?

Not usually - remortgages for a business are not a typical product.

If you plan to remortgage your residential property to raise business finances, it is vital to work with a broker who can recommend lenders who offer this type of commercial lending.

Remortgaging to Start a Business

If you plan to start a business and want to release equity to raise the capital needed, you will find most high street lenders will not be able to accept your remortgage application.

Revolution does work with niche lenders who can, particularly for high net worth individuals earning over £150,000 per annum.

Most mainstream lenders can't remortgage in this scenario, because the business hasn't started trading yet. Therefore there is no trading history, accounts or income evidence to know how successful the company will be.

If you have ongoing employment and are not leaving that role to run the new business, then usually your salary can be used in the affordability calculations. However, this is very much a specialist product since a mainstream lender will need some assurances about the business future before they can extend an offer.

Remortgaging a BTL Property to Raise Business Capital

Usually, you can remortgage a buy-to-let against the same rules as for a residential property.

That means that, if you find a lender who will accept a remortgage application to raise capital for business purposes, you have the same chance with a BTL property as with a residential home.

Releasing Equity to Invest in a Business

Some niche lenders will release equity for business investment - however, this will be subject to scrutiny about the terms and anticipated returns on the investment.

Remortgaging to raise money to invest in an existing business you own is more challenging, as there isn't much scope to analyse the risk factors.

The considerations include:

  • Business failure, meaning you cannot keep up with repayments.
  • How investment will impact business activities.
  • Whether your income will change following the investment.

When applying for a remortgage to invest in an existing company, a mortgage lender will ask for information about:

  • The impact on your income, and if you plan to leave your existing employment.
  • The nature of the business and your experience in the sector.
  • How the business will provide returns on your investment to cover the remortgage repayments.

When remortgaging to invest in shares of an existing business that you will not be involved in running, then a specialist lender can usually help, provided your income is not going to change, and the investment is a viable proposition.

What Are the Alternatives to a Remortgage to Raise Money for a Business?

If you need to raise business finances and are looking for options rather than remortgaging your residential property, there are several alternatives to consider:

Secured Loans

A second charge mortgage is always an option, given the more flexible criteria.

You are more likely to be able to release equity for business investment through a secured loan than through a remortgage - although the rates charged may be higher.

Business Loans

Business loans are more straightforward and don't need to be secured against a property. The rates are usually higher than a mortgage, but then the lending will not be linked against your residential home.

Lenders will ask to see business trading history and accounts, usually as well as a cash flow forecast to check that the business is expected to keep up with repayments.

They will also analyse the investment, and look for information about anticipated growth.

Given the lack of property security, most lenders will ask for personal guarantees from company directors and shareholders, which means they will be personally liable for the debt if the business fails to make the repayments.

Lenders can also ask for debentures to hold a charge over the business assets until the loan is repaid.

Commercial Bridging Loans

As with personal bridging loans, the commercial version of this lending is suited to short-term borrowing, usually around six to twelve months.

Rates are higher, and the bridging finance is typically secured against a property. This is then repaid either through refinancing or through selling the property.

Bridging finance is an alternative if you cannot secure traditional lending, provided you have the equity in your property to act as security. Typically, the affordability and eligibility criteria are less strict.

Asset Finance

Another commercial option is asset finance, whereby lending is secured against any business assets. This could be properties, but also vehicles, equipment, machinery or anything else owned by the business.

If you need commercial finance and would benefit from professional support to compare the options available, give us a ring or drop us a message at info@revolutionbrokers.co.uk.

Frequently Asked Questions - Remortgaging for Equity Release

Here are the answers to some of the most common questions the Revolution Brokers team receives about remortgaging to release equity.

Can I Pay Off My Debts Through a Remortgage?

You can - debt consolidation is one of the most popular reasons to apply for a remortgage.

This can save you a considerable amount of money, with lower rates, longer terms and smaller monthly repayments through a remortgage.

It is essential to understand the costs and decide what terms you are looking for. For example, how much you need to borrow, and for how long. You should also ensure that you understand the interest payable and the total interest over the lifetime of the loan.

Can I Pay a Tax Bill Through Remortgaging my Property?

Usually not, although niche lenders can consider a remortgage to raise capital for tax liabilities.

In commercial scenarios, if a tax obligation has arisen that you need to finance, but can demonstrate that you won't run into similar problems in the future, then specialist lenders may be able to consider your application.

Is it Possible to Remortgage to Cover Education Fees?

It is; provided you apply to the right lender, you can remortgage to raise funds for education costs from nursery charges to private schooling and university fees.

You should also consider other options to avoid paying interest when you don't have to. For example, if the school offers the Fees in Advance scheme, you can achieve significant discounts, and this might be a more cost-effective option than a remortgage.

Can I Remortgage a Property with Shared Equity?

Shared equity means that a property is owned through both a mortgage and a secured loan. This sort of scheme is usually governmental, although it also applies to private development lending.

Help to Buy is the most common example, whereby:

  • The buyer contributes a 5% deposit.
  • The government loans 20% of the property value.
  • The remaining 75% is financed through a mortgage.

This can be a more complicated scenario to remortgage. However, the Revolution team does work with specialist lenders who can offer remortgages to repay a Help to Buy equity loan.

Can I Remortgage My Property to Buy Out a Co-owner and Release Capital?

Yes, if you want to buy out the equity of somebody who owns a property with you - typically a family member or ex-spouse, you can do so.

If you want to add a new owner to the mortgage, then the usual credit checks and affordability checks will apply before the lending can be agreed.

Where you wish to remortgage to buy out equity owned by an ex-partner following a separation or divorce, then you will need to go through affordability checks again to ensure you can make the repayments.

Equity transfer remortgages can be applied for through your current mortgage lender, or a new provider. In any case, it is worth asking a broker to recommend the best deals available to avoid paying over the odds.

You should always ensure that no matter the nature of the buy-out, the mortgage payments are kept up to date throughout the refinancing process to avoid running into problems. All co-owners will also need to sign the paperwork before any additional borrowing can be agreed.

Will I Have to Pay Stamp Duty on a Remortgage to Transfer Equity?

Stamp Duty can be payable on a remortgage to transfer equity. Your solicitor will need to file a report to HMRC if you are taking ownership of a mortgage or property share worth more than £40,000.

However, stamp duty thresholds apply, so if the property is worth below a specific value, then no fees are payable.

Give us a call for more information about the current stamp duty rates and thresholds.

Are Capital Gains Taxes Payable on a Property Remortgage?

No, capital gains tax is not payable on remortgaging.

You will need to pay this tax when you sell a property, with the tax payable on the profit, if the property is an investment rather than a residential home.

Is it Possible to Remortgage if I Have Negative Equity?

Possibly, but it can be difficult. Most lenders will not extend an offer against property in negative equity, although you can switch rates between lenders if you don't wish to raise more capital.

In some cases, you can apply for non-equity borrowing. Still, you will need an experienced broker to identify specialist lenders who can lend up to 120% of the value of your property.

Note that charges on a non-equity loan will be higher than on lending secured against your property.

What are Remortgage Surplus Funds?

The surplus funds are the finances left over when the remortgage has completed, and your existing mortgage has been paid off.

If you are remortgaging to raise capital, and have borrowed more from a new mortgage lender than you previously owed, then your solicitor will transfer the excess to you on the same day that the new loan completes.

As an illustration, if you apply for a straight switch between mortgage providers to take advantage of a better rate, and the outstanding balance is £100,000, any repayments you make between applying and the remortgage completing will be transferred to you as surplus funds.

How is Equity Release Different From a Remortgage?

Equity release is not the same thing as a remortgage. Equity release plans are aimed at homeowners over 55 years old, with the most common product being a lifetime mortgage.

This is still a loan secured against your property, but rather than making repayments, the interest is added to the total loan value.

When you pass away, or another event takes place, then the total loan is repayable. You can use the capital released for any purposes you wish.

Equity release is an option if you are over 55, but it is still essential to understand the pros and cons.

Can I Apply for Additional Borrowing for a Larger Loan?

Some lenders have remortgage caps, and there are rules about borrowing more than £500,000, so the amount you wish to borrow does make a difference.

Fewer lenders can offer a larger mortgage and, therefore, rates are typically higher, and LTV caps are lower. 

If you need to remortgage to borrow a large amount, even stretching into the millions, it is possible through a broker and specialist lender. However, if you have bad credit, or are self-employed, you will have only a small number of lenders to choose between.

Expert Support with Equity Release Remortgages

If you are considering remortgaging, or want to compare the costs and benefits of the different capital release products available, get in touch with the Revolution team today.

As an independent whole-of-market broker, we will advise on the right products for you, and the lending we would recommend in your circumstances.

Give us a call on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk.

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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