How can I raise more money on my property?

Series A: “How” questions on remortgages.

How – Question 2.

For todays’ “How” on Google, we will shed light on the ways additional money is freed on a property.   There are several common “how” questions on the topic, looking for the same answer. 

How to remortgage to release equity?

How can I raise more money on my property?

How do I get a second charge loan?

In the previous question about rate change we addressed one meaning of the term remortgage.  For most of the public, a remortgage is same as a product switch as they achieve the same result.  Similarly, when it comes to releasing equity in a property, remortgage for additional capital  can have the same meaning to the layman as it produces the same outcome, but to a professional it can be three different processes. 

1. Raising capital on outstanding equity with the same lender is called a further advance.
2. Changing lender and increasing the loan at the same time to free up equity from the property is called a remortgage. 
3. Staying with the current lender, but raising capital with a different lender is called a second charge.

In general these conditions apply to both residential and buy to let property.  This does not cover Equity Release type / Lifetime Mortgages for over 55s. 

There are many reasons people raise additional funds from their property.  These could be for home improvements, repaying debt or even investing in another property.  

Why would you use one option over another?

This comes down to several factors.

• Type of existing mortgage.
• Fees
• Penalties
• Income multiples
• Property value.
• Rental assessment (BTL).

1. Further Advance.

This is when you ask the existing lender to increase the mortgage and lend you more money based on the equity on the property.  

Let’s say you are in the middle of a special rate period, such as a fixed rate for 5 years.  It is likely there will a penalty (redemption) to move the mortgage to a different lender.  So the first call is to ask the existing lender for additional money.

Disadvantages 

• the current lender may not do a new valuation, instead rely on an average house price indexation calculation to determine the value.  So it might not reflect a true increase in market value – which can lower the additional funding available.
• Maximum can also be restricted to lender’s income multiples or rental assessment (BTL).  These might be lower than someone else’s. 
• lender’s appetite for lending.  They may not want to increase their risk on the property/applicant.  
• the further advance is treated as a new loan and will go on a new rate.  This might not be market leading.  
• unlikely to agree a further advance if credit status has deteriorated.  

Advantages

• low fees: low application fee or the fee is based on additional borrowing only and may not require a new valuation fees.
• lender has your history of payment.
• no redemption penalty.
• quickest option when capita raising.

2. Remortgage to a different lender. 

If the existing lender refuse to give the required funding, the next option is to move the mortgage to new lender.  Changing the lender will be  treated as a new mortgage application.

Disadvantages

• if the current mortgage is in the middle of a special rate e.g. fixed rate, discounted rate etc, there is likely to be penalties to leave to another lender.  In general the penalties are a percentage (%) of the loan in descending order.  On a 5 year rate this could be 5%, 4%, 3%, 2%, 1% or 3%, 2%, 1% on a 3 year rate.  Therefore the cost of moving can be too high in the middle of the special rate.  
• there can be other fees, application fee, solicitor fee.  Although most high street lenders these days offer free valuations and possibly legal costs on a remortgage.
• you will be credit scored and your financial status assessed by the new lender.  If your credit status has declined since the current mortgage, you may not get a comparable beneficial rate.  
• takes longer as it is a new application and needs to go through the legal process.

Advantages

• your property will be appraised new, consequently the loan can be based on the latest market value. 
• the new lender might provide higher loan to income (LTI) multiples allowing you to borrow more. 
• the whole loan can go on a single beneficial rate.  Compared to additional borrowing through a further advance.  Which is treated as an add-on loan and have a different rate (likely higher) to the main loan.
• your income may have increased allowing increased borrowing limits.