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Remortgaging for additional borrowing

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By Pete Mugleston   Mortgage Advisor

Last updated: 8th November 2018

Our guide to releasing equity in your property for a variety of different purposes...

From bankrolling that extension you’ve been dreaming of, to settling your long-standing debts, there are many reasons why you might want to remortgage to release equity.

Here, we have provided everything you need to know about taking out a remortgage with additional borrowing, as well as the alternatives that are available to homeowners who are considering a remortgage to release equity from their property.

Read on to find out more or get in touch and the whole-of-market advisors we work with will offer their expertise on this subject and help you find the lender offering the best deals.

The following topics are discussed below…

How does remortgaging work to release equity?

Customers often get in touch with us to ask “can I borrow more when remortgaging?” and if this is something you’re eager to know, you’ll be pleased to hear that many UK lenders are absolutely fine with it, as long as you pass their eligibility checks.

Which lender you qualify with will depend on various criteria to do with what you need the money for, how much equity you have, and whether the loan is affordable, as well as accepting any credit history issues you may have.

Equity is the portion of the property the borrower actually possesses, and it is typically a homeowner’s greatest asset. To calculate how much equity you hold, subtract any outstanding loan balances from the property’s current market value.

Those who remortgage with extra borrowing can release some of the equity they’ve built up, and for many, this is the most affordable way to borrow a large amount of money.

Remortgage or secured loan for additional borrowing

Often, when looking to raise capital from a property, borrowers will refer to and only consider going to their bank and asking for a remortgage. Whilst this can be a suitable option, it is always recommended to compare the costs of this with other forms of borrowing, such as…

Full remortgage for additional borrowing

A remortgage with additional borrowing is a full swap from the current lender to a new one. Additional borrowing can be achieved along with the refinancing of your existing loan.

Second mortgage / secured loan for additional borrowing

Not to be overlooked, refinancing with a second charge mortgage (a.k.a a secured loan) can be a great alternative, and differs as it allows the borrower to leave their current mortgage where it is, and borrow more money with a new loan. This is great for those in a tie-in period with penalties to pay if they remortgaged, or for those on a fantastic rate who don’t want to remortgage away, or even for those who are unable to refinance as maybe their current mortgage is interest only or they are not eligible with first new charge lenders.

Secured loan lending can be more flexible and offer larger borrowing amounts, as criteria around income and credit history is more generous.

Can I remortgage to release equity?

If you’re hoping to remortgage your house to release equity, many UK lenders would be willing to oblige, providing you pass their eligibility checks for a remortgage and have actually built up some equity during the course of your mortgage. Generally, when you are capital raising, depending on the reason for the money (as some are restricted to a lower loan to value), most lenders will consider releasing up to 75-85% of the property value, with some willing to lend up to 90%, depending on the purpose for the money (some restrict this to a lower loan to value in certain circumstances). It is actually also possible to borrow up to and over 100% of the property values with some lenders, but this would be on a secured homeowner loan basis, and rates would be extended to be far higher than traditional mortgage or second charge lending.

How lenders assess eligibility for a capital raising remortgage

Borrowers who wish to remortgage to raise capital from their property will be assessed based on the following factors…

  • How much equity they hold (the more, the better)
  • Their age (some lenders are unwilling to deal with applicants over 75, but others will stretch to 85, and a minority impose no age limits at all)
  • Income and employment status (the lender must ensure the new loan is affordable and income type is acceptable to them, with every lender different on what they accept and how generous they are with their lending calculations)
  • Credit history (a clean credit history always helps, but some remortgage providers specialise in customers with credit problems)
  • If the remortgage is classed as a large loan or not (there are often different rules for loans over £500,000-750,000, up to millions.)
  • As well as factors to do with the build and age of the property

How much equity do I need to remortgage?

To put it simply, the more the better, as homeowners who have built up a healthy amount of equity during the course of their mortgage are of lower risk to lenders.

Many lenders cap the loan to value (LTV) on capital raising to 75%, where others will consider up to 85%, and a few will consider up to 90% in some circumstances.

How much extra can I borrow?

When remortgaging to free up equity, the extra amount you’re able to borrow depends how closely you meet the lenders’ eligibility requirements for a remortgage, and lending criteria will vary from provider to provider. The main considerations are:

  • Your income and affordability
  • The purpose for the new funds

How Your income and affordability impacts additional borrowing

Some lenders are stricter than others and take different types of income into account to different degrees - such as regular bonuses and overtime, where certain lenders accept 100% and others won’t accept this income at all.

As a general rule, take the applicants’ combined annual income, multiply it by four and you’ll get a rough idea of the total amount you’re able to borrow. Select mortgage providers, however, may lend up to five times your income, and a handful up to 6x, providing you tick the other boxes on their eligibility checklist, and a minority go even higher.

It’s also important to factor in any other debts that will remain after the remortgage has taken place. Most lenders will be happy to ignore the payments of debt being paid off in their calculations for the new mortgage, but anything that remains will of course eat into what you can afford to spend. Even if after the refinance you’re likely to be in a far better position, lenders cannot approve a mortgage that is outside of the affordable limits.

You might be able to borrow more on a second mortgage

Some lenders of secured loan / second charge mortgages can offer more generous affordability calculations, and it is possible for some to borrow up to and over 10x annual income in the right circumstances.

How the reason for the money impacts additional borrowing

What you’re planning to use the capital for is often crucial when lenders are assessing customers who are remortgaging to release money. The loan to value (LTV) limit you can borrow up to can hinge on this. The table below puts this point into perspective…

Most lenders (LTV) Specialist lenders (LTV)
Debt consolidation 80% 90%
Home improvements 80% 90%
Mortgage swap (No additional £) 90% 95%
Buy furniture, electrical or white goods 80% 90%
Buy car, caravan or boat 80% 90%
Pay for school fees 80% 90%
Pay for medical expenses 80% 90%
Other personal consumption 80% 90%
Buy final share in shared ownership 90% 90%
Buy a self build home 75% 80%
Purchase a second home 80% 90%
Buy a holiday home 80% 90%
Buy freehold or new extended Lease 80% 90%
Buy a share in the freehold 80% 90%
Buy land to extend security 80% 90%
Invest, save, or share purchase Not usually allowed 90%
Invested for business purposes Not usually allowed 90%

If you’re unsure how much capital you’d be able to access with a remortgage plus additional borrowing, get in touch and the whole-of-market lenders we work with will connect you with the lender best equipped to provide this product to somebody in your circumstances

Remortgaging for business purposes

Banks and building societies offer a range of services to business owners and aspiring business owners, but remortgages aren’t usually one of them.

This means that anyone planning to remortgage their home for business purposes must seek out the specialist lenders who offer commercial products, and the advisors we work with know who they are, and would be more than happy to connect you with them.

Remortgaging to start a business

Some borrowers decide to remortgage to use the released capital to buy a business or fund a business start-up, and the vast majority of mainstream lenders won’t be able to provide this service, although some will make an exception, especially for high net worth customers, i.e. those whose income is more than £150,000 after tax.

The reason most lenders turn away borrowers who want to remortgage their house to fund a new business is because they are unable to provide evidence of income cashflow as, to state the obvious, the firm hasn’t started trading yet. If the borrower has and will maintain a job, then income can be accepted, but lenders will still be concerned about the risk of the business going under and causing financial pressure that can impact the borrowers’ ability to repay.

Remortgaging a buy to let for business purposes

In general, the rules will be the same between residential and buy to let lenders. If a lender is happy with lending for business purposes on a residential, it’s likely they will do so on their buy to let products too. Equally, if they decline on residential, it’s unlikely they’ll approve on a buy to let.

Remortgaging to invest in or grow a business

To refinance for business purposes, thankfully there are some specialist lenders happy to remortgage, and at attractive rates too. That said, some will ask a few more questions, so be prepared to answer them! For instance:

If you want to remortgage to invest in a business you already own, then many lenders will decline your application as they deem an investment like this as an unknown potential for risk. For instance, if the investment fails, does this impact the borrowers’ ability to repay the loan? Is the investment likely to significantly change how the business functions? Will it change the borrowers’ income?

If you want to remortgage to buy into an established business that you’ll go on to run, then lenders may want to know;
A) will your current income stop?
B) what the business does, and are you experienced in doing it?
C) what income will you be receiving from the business to afford repayments etc.

If you want to remortgage to buy shares in an established business and have no involvement, then so long as your income won’t change and the investment is of legal standing, most of the specialist lenders for business purposes will support the application.

If you are a business owner, you may also be interested in refinancing to repay tax bill below…

 So, what’s the alternative to remortgaging for business purposes?

Mortgages aren’t the only options for budding companies in need of capital.

Secured loans for business purposes

As we discuss in more detail later in the article, some secured loan (also known as second charge mortgages) lenders are more flexible than their first charge main residential mortgage competitors. For this reason, some are happier to consider releasing equity for business purposes in a more flexible and accommodating way. Rates may be higher, but they can offer the funds where others don’t.

Business loans

Often the most viable alternative to remortgaging a residential property is a business loan, and these don’t necessarily have to be secured against a property, although the interest rates are typically higher than with mortgages. Generally, lenders will want to see that the business is a going concern, has the cashflow to be able to afford and service repayments, and that the potential investment is thought out and likely to only enhance growth.

Most lenders will want the main shareholders / directors to put up personal guarantees, confirming they will personally be responsible for repaying the debt if the business fails to do so. Some also want to hold a legal debenture over the business during the term of the loan.

Commercial bridging finance

In some circumstances typically where the money is only required for a short time, it may be possible and sensible to borrow on a bridging loan. This is essentially a higher rate loan secured against a property for 6-12 months with interest added to the loan, and paid off in full by either refinance or another exit strategy such as sale of the property. Bridging can be an option where more traditional means are not approved, so long as the equity is there, as they can be much more flexible in terms of purpose and credit history, and affordability is seldom an issue as the interest is rolled up into the loan.

Asset finance

Similar to bridging finance, but secured on any suitable asset rather than just a property. This may be plant machinery, vehicles, land, tools / equipment, loads of things.

If you’re unsure whether to go for a secured loan, a business loan, or a remortgage, get in touch and the expert advisors we work with will discuss all of your options before connecting you with the advisor best suited to dealing with borrowers in your circumstances.

Can I remortgage to pay off my debts?

Yes! Many of our customers have remortgaged for debt consolidation purposes, and this has helped them switch from high rates, low terms and tough monthly payments, to lower rates, lengthier terms and much more manageable repayments – we have testimonials from customers who have saved literally £ thousands per month.

Whether you’re up to your eyeballs in debt, or have borrowing you’d like to refinance, and have a generous amount of equity ready to unlock, doing this makes sense, but it’s important to weigh up the overall costs you’ll face.

They will vary based on your circumstances, how long you secure the debt for, the rates the lender offers and how much interest you’re paying. There’s a chance you could end up paying even more over time, so make sure you speak to an expert advisor, like the ones we work with, before pressing ahead.

Can I remortgage to pay a tax bill?

Most lenders will not allow you to remortgage if you’re planning to use the released equity to pay off a tax bill. There are, however, a minimal number of providers who will consider offering you a deal under these circumstances, subject to other criteria that one of the experts we work with can go through with you.

In general, so long as the business is trading well and the issues surrounding the unpaid tax have now been resolved, there are some lenders happy to help repay the bill by lending you the money.

Can I remortgage to pay off school fees?

Some lenders will allow borrowers to use the capital released by a remortgage to fund their children’s education, whether that’s fees for early years schooling, secondary schools, A-Levels at college or tuition fees when they go off to university.

That said, there may be other options available. Some schools have a Fees in Advance scheme in place, which grants parents significant discounts if they pay for their children’s education in advance - so you the amount you need to borrow when remortgaging might be less with this in mind.

How to remortgage to release equity

Here at Online Mortgage Advisor, customers often ask us “how do I remortgage to release equity?” and if you’re one of the many pondering this, we’ve got good news: remortgaging in general is usually a more straightforward process than taking out an initial mortgage.

Complications can arise if you have no equity or your circumstances have changed since you took out the original deal, but for many borrowers, it’s a relatively stress-free experience.

  1. If your plan is to remortgage to release cash, first work out your LTV ratio by dividing the loan value by the value of your home and multiply that figure by 100. Make sure your new deal will be affordable when offset against your income and outgoings.
    Remember: max borrowing is capped around 4x income with most lenders, 5x with a few others, and 6x by exception. If you want to borrow more than this, then you’d need to consider a secured loan (one of the experts can help here).
  2. Next, look for the lender who is offering the most favourable deal for somebody in your situation. The best way to find them is through an expert advisor, like the ones we work with, as they will search the entire market to find the right provider for you.
    Remember: Remortgage comparison rates tables are nice to look at, but finding the best one that you qualify for is another thing altogether, and making multiple applications with numerous lenders can impact your credit score (as well as take ages!)
  3. The broker will then gather all the relevant information from you, as well as documents like ID and proof of address and income.
  4. The broker will then make an initial application and get an agreement in principle approved.
  5. Then the full application goes into the lender, outlining the exact product you want, and gives you the option to input solicitor details, and book a valuation on the property.
  6. Once the underwriter has signed off all paperwork and the property is valued OK, the mortgage will go to formal “offer”.
  7. Solicitors will then do the necessary work to change the charge to the new lender and organise release of the funds.
  8. Your existing lender is paid by the solicitor, who then pays any surplus funds into your designated bank account. You have then completed!

We always recommend this as a more sensible option than heading to the bank (as you will be limited to one mortgage provider’s products) or consulting comparison websites, which often consist of rates tables with little context, sponsored products in the most prominent positions, and deals you’ll have no idea whether you qualify for or not.

How soon can I remortgage to release equity?

Technically speaking, some providers will let you remortgage to release money as soon as you have equity to extract, although there’s a legal requirement which states that a borrower needs to have owned the property for at least six months before remortgaging.

This, however, is waived in some circumstances, such as when the property in question was gained through inheritance or when one family member is buying out another.

Remortgaging a shared equity property

Shared equity, not to be confused with shared ownership or joint ownership, is the term used to describe a property owned by way of a mortgage and a secured loan, usually granted by the government (although can be private developer loans).

The most commonly used shared equity setup is the Help to Buy scheme, where buyers put in 5% deposit, borrow 20% on an equity loan from the government, and mortgage the remaining 75%.

We get loads of enquiries from customers who are now looking to remortgage on a shared equity property, as the shared equity remortgage process can be more complex than a standard remortgage, and a lot of lenders don’t cater for this.

It is a growing problem to be addressed, especially since the success of Help to Buy, and thankfully there are many lenders now offering Help to Buy remortgages and for other equity loan purchases, so make an enquiry and speak to an expert today.

Remortgage to release funds and buy someone out

A transfer of equity takes place when you want add or remove one person or more to the ownership of a property. To remortgage with a transfer of equity, applicants must be subject to the same eligibility checks as a normal remortgage. For instance, if you were recently married and your spouse is joining the mortgage, the provider will look into their credit history, income and more assess how much risk is involved in the revised agreement, as well as re-assessing your situation.

Similarly, if you’re recently separated and are planning to remortgage to pay off your ex with your portion of the equity, the mortgage provider will want to ensure that the new loan is repayable on one salary alone.

A transfer of equity remortgage can be carried out by your existing lender, or by finding a new lender offering a different range of products, as is the case with regular remortgages.

Remember: If you share a property with someone, either as joint tenants or tenants in common (with defined % ownership), the mortgage remains a joint and several liability. As such it is crucial that the mortgage payments are made throughout any period of disagreement. It’s also prudent to note that if you want to borrow against the property, all parties will need to agree and sign for it.

Do I pay stamp duty on a transfer of equity remortgage?

Stamp Duty Land Tax (SDLT) may have to be paid on a transfer of equity remortgage. Your solicitor must send a Stamp Duty Land Tax form to HMRC if the share of the property the new person is taking on (or a previous mortgager is relinquishing) is worth more than £40,000, to complete the transaction.

However, stamp duty fees only apply during a transfer of equity agreement if said share in the property is worth more than £125,000.

Do I pay capital gains tax when I remortgage a property?

Capital gains tax is a tax you must hand over when you offload an asset, based on the amount of profit you made. In the context of property, main residential property is exempt, but on investment property if a landlord sells a buy to let property at a profit, this tax applies.

Luckily, capital gains tax does not apply on a remortgage. It will only be payable when the property is sold.

Can I remortgage with negative equity?

In theory, you can take out a remortgage with negative equity or no equity, but the only provider that can offer this is your current lender, and they will most likely only allow you to switch rate, rather than borrow more on a negative equity remortgage.

The rates you end up with will depend on how flexible your lender is when it comes to customers in your situation.

The exception to this is if you are considering non-equity borrowing, where there are a few lenders willing to offer over 120% of the property value, but bear in mind, rates and fees are likely to be far higher than a traditional mortgage or secured loan. If you need to borrow over 100% of the property value, then get in touch and one of the experts will give you the right advice.

Remortgage surplus funds

You may have heard this term being bandied about by financial websites and property publications, but what are remortgage surplus funds and when do they apply?

Well, surplus funds are basically capital due to you following the completion of a remortgage agreement. They will occur when you’ve borrowed more money from a new lender than was actually needed to settle the debt with the previous provider. Your law firm will arrange for this capital to be repaid to you on the day of completion.

For example, you apply for a £100,000 remortgage that takes 2 months to go through, in which time you may have made 2 more payments from your original mortgage. In this instance, as the new £100,000 is a fixed amount over a fixed term, you will have a “surplus” owed to you.

Can I remortgage to release equity on a buy to let?

Many UK lenders offer customers products to remortgage their buy to let property, depending on the number of properties held, whether this is in a Limited company or personal name, and of course, if the rental income for the property adequately covers the new mortgage payments (within new stress testing guidelines).

For more information about remortgaging a buy to let property, consult our dedicated page on this topic, make an enquiry, or give us a call and an expert advisor will field your questions.

Buy to let second charges

A BTL remortgage to release equity may not be the most financially viable option available as there are other ways to raise money via your property, by way of leaving the current mortgage in place and applying with a secured loan buy to let lender.

Buy to let secured loans tend to be more flexible when it comes to credit history (can accept more recent and severe issues), income (can be more generous when it comes to maximum loan amounts), and purpose, but with this additional risk can come higher fees and rates.

Alternatives to a remortgage

If you have been declined for a main remortgage either on a residential or a buy to let property, or you think that it might not be for you, it would be worth considering some alternatives.

Second charge mortgages for additional borrowing

As referenced several times above, one of the most popular alternatives is a second charge mortgage - or a homeowner loan - which is a loan secured against the equity of a property you own. It’s essentially a mortgage on top of a mortgage.

Borrowers locked into a deal with high early repayment charges or on interest only and unable / unwilling to change, might find this is the best option, while those who have been turned down for a main mortgage for whatever reason sometimes find that providers are more flexible in their criteria for secured loans, often lending in excess of 10x income, and to more recent and severe credit issues.

Personal loans for additional borrowing

For many consumers, it’s a choice between a remortgage or additional borrowing, and an unsecured personal loan is another way to do the latter.

The obvious benefit of a personal loan is that they aren’t secured against a property, which means your house will not be at risk if you fail to keep up with the repayments. That said, rates tend to be higher than with second charge deals and remortgages.

Unsecured loans are capped at £25,000 and must be paid off within seven years, which obviously means the repayments will be more than if the same amount of borrowing was stretched across a standard mortgage term.

Bridging finance for additional borrowing on a house

Depending on why you need to release funds, a bridging loan might be a better fit than a remortgage. These are stop-gap loans designed to tide the borrower over when a debt is due before a more traditional mortgage / loan is available, if for instance, the credit history is too poor but likely to be approved in the near future, or income is not acceptable but this is likely to change in the coming months, or when there is another exit strategy in play, such as the plan to renovate and sell the property to repay the bridging loan.

They typically come with high interest rates and are popular among landlords and property developers, as they enable them to snap up new properties quickly, which is useful in situations such as auctions.

When remortgaging to free up cash isn’t a viable option, for whatever reason, a bridging loan could offer a lifeline, but it’s vital to be clear on the overall costs and risks they come with. Along with the high interest rate, there’s often legal and administration fees to foot.

If you’re unsure whether remortgaging to get cash or one of the loan products mentioned above is the right choice for somebody in your circumstances, make an enquiry and the advisors we work with will discuss all of the available options.

Equity release for additional borrowing on a home

Customers often ask us whether equity release is the same as releasing equity while remortgaging, and the answer is no. Although there’s a similarity in terms of terminology, equity release is an entirely separate product.

In a nutshell, an equity release plan is a product geared towards over-55s, and the most common type is a lifetime mortgage.

This is a loan secured against a home, and the main difference between equity release and a mortgage is that instead of monthly repayments, the interest is added to the loan amount. The final total is payable at the end of term, usually when the customer passes away or enters long-term care. Another key difference is that you can use the capital release for whatever purpose you choose, and this will make no difference to the lender.

If remortgaging to take out money isn’t a suitable option, equity release is a potential alternative if you’re over 55, but releasing equity should never be done lightly, so it’s important to be aware of the pitfalls and alternative options before pressing ahead

With this in mind, you should speak to an advisor before deciding whether to choose equity release or a remortgage, and the brokers we work with would be happy to help you out.

Additional borrowing for large loans

Borrowing more than £500,000 can change things with some lenders, who can stipulate further requirements / criteria, or conversely, be more flexible with certain things.

In general, there are fewer lenders offering large mortgages which in turn means that rates can be less competitive and maximum lending  loan to values can be lower (although still possible to borrow a large mortgage with a low amount of equity).

This usually means that the range of options for borrowers remortgaging to borrow a large amount can be restricted, and those looking to borrow millions with bad credit or self-employed income can find themselves looking at only a handful of lenders.

That said, there are options, so if you’re looking for additional borrowing and have a large mortgage, or want to borrow a large amount, make an enquiry and one of the large loan experts will give you the right advice.

Speak to an expert additional borrowing mortgage broker

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the remortgage financial advisor with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 8th November 2018
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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.

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