How does remortgaging work to release equity?

Equity is the name given to the amount of money you own in your property. For example, if your home is worth £300,000 and you have a mortgage of £200,000 then your equity is the remaining £100,000.

If you currently own a property and have been wondering ‘How does remortgaging work to release equity?’ then the following advice should help you. If you want to read more about equity release then read our article titled What is Equity Release?

How to build up equity

Although equity is the amount of money you own in your property after your mortgage loan is taken away from your home’s total value, there are two key elements in building up your equity. One is that your property’s value could increase (based on market house prices, which as we know, rise and fall); if it does increase, you will have more equity now than you had when you first bought your property. The other way is that your property’s value remains the same, but you could pay down your mortgage over time with repayments.

Things to consider before remortgaging for cash

Remortgaging for cash should never be taken lightly, and it is important to work out the costs of applying for a larger mortgage against the value of your equity first. If you want to learn more about remortgaging read our article titled What is Remortgaging? Also we have answered the most frequently asked questions at What is the purpose of remortgaging?

Equity – what you should look at

  • Estimate the value of your home against what’s left of your outstanding mortgage. If you proceed with a further advance or remortgage, the lender will carry out their own checks with a panel surveyor to confirm how much your property is worth in the present market.
  • Websites such as Zoopla can usually give you an estimate of what your property is worth. However, these aren’t always accurate so it’s worth looking to see if any similar properties have sold recently in your area.

The cost – what to look at

  • Look at how much your current mortgage repayments are and your other present expenditure and work out an amount that’s manageable for you each month
  • Be aware of any exit fees from your current mortgage; you may find there’s an early repayment charge to move away from your current lender and this amount could be considerable.

How to access your equity

If you have equity in your property that you want to release, there are a couple of options available to you. Firstly, you could sell your property. This would mean paying off any mortgage you held on the property and the remaining amount – the profit – would be yours to keep (less any solicitor costs or other fees you might incur).

Secondly, you could remortgage to release the equity in your home. This process involves borrowing more money than your existing mortgage amount from a bank or lender. As an example, if your property value had risen by £75,000 and you’d like to take £40,000 of this amount to invest elsewhere, you could apply to add £40,000 to your current mortgage or apply to a lender – this is known as ‘remortgaging’. There are also second charge lenders who would consider lending to you. They will register a legal charge behind your main mortgage provider. Their rates are usually higher than your main mortgage provider but they can lend in some circumstances where your usual provider is not able to help.

The process of applying for a mortgage in order to release equity from your property is similar to the application for any mortgage. This will be based on the ratio of equity to mortgage (also called the loan to value – LTV) as well as your income and monthly expenses. Most importantly for a lender will be the level of risk involved in lending to you, and the affordability of the loan will be assessed through a thorough remortgage application process.

Equity release on leasehold properties

If your property is leasehold, you are still able to consider releasing equity from your property. However, all mortgage providers will have different criteria in terms of what is and what isn’t acceptable with regards to the lease term length. They usually look for a remaining term on your present lease of around 75 years. If you own the share of the freehold in your property, you will find there is usually a lease in place too. It’s important to note the cost of any ground rent and service charge you pay as these are taken into account when assessing if the mortgage is affordable.

How long does a remortgage take?

If you are looking to remortgage, depending on the complexity of your application, remortgaging usually takes between four and eight weeks.

If you want your new mortgage deal to begin when your current deal ends, an application can be considered a few months before the rate ends to secure a rate, or confirm that borrowing is available to you – completion would not usually take place until your present rate finishes if there are penalties applicable. Our advisers can confirm the best course of action regarding this.

Releasing equity to buy another property

Of course, you may be looking to release your equity in order to purchase another property. And whether this is an investment to rent out, a holiday home or just somewhere to spend part of the year, there are a number of key points to consider, including stamp duty (there have been changes that mean a second home or investment property will normally mean an additional 3% stamp duty is payable) and the different mortgage options available. If you’re thinking about buying a second property abroad, you should always research this carefully as different taxes and regulations will need to be considered.

Whether you are looking to borrow more money from your existing mortgage provider or you would like to remortgage to release equity with a new bank or mortgage lender, Private Wealth Mortgages can help. Give us a call on 01403 337253 and one of our friendly, impartial and experienced mortgage brokers will be happy to help.

Click on the relevant link below to read further information:

Remortgaging

How do I remortgage my home?

How does remortgaging work to release equity?

How to buy a second property using equity?

Releasing equity to buy another property

Remortgaging for more flexibility

What is the purpose of remortgaging?

What is equity release? 

How does remortgaging work to release equity?

Remortgaging to consolidate debt

What is remortgaging?

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