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.
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 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:
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 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.
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 email@example.com.