How Can I Remortgage to Release Equity?
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.
Can I remortgage to release equity or is there a better solution? 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.
Can I remortgage to release equity of any value? 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 apply to.
Can I remortgage to release equity quickly? 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 to Release Equity to Buy Another Property?
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. Can I remortgage to release equity if I have only a nominal equity value in my home?
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.
Can I remortgage to release equity if I am on a low income? 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 is 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.
Can I Remortgage to Release Equity for Any Reason?
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.
Can I Remortgage to Release Equity on a Buy-to-let Property?
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.
Can I remortgage to release equity from a buy-to-let or should I apply for a secured loan? 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 year’s 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 when 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 to Release Equity 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.
Can I Remortgage to Release Equity 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.
Can I Remortgage to Release Equity Against 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.
Can I Remortgage to Release 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 [email protected].
