There are a few options available to you if you would like to release some equity from your property. Some will cost considerably more than others, so it’s important to speak to an adviser to make sure you get you the right deal.
There are any number of reasons why you might need to release money from your property and the lender is going to be interested in your intentions for the money once you get your hands on it; whilst most purposes are generally acceptable there are a few which will require specialist advice. Fundamentally lenders wants to know you are going to be sensible with the money and that there is a genuine purpose in mind. For example, borrowing more (or ‘raising capital’ as we say in the mortgage world) because you want to make improvements to your home is always going to be an acceptable purpose as far as the lender is concerned. If you are building an extension, not only do they know where the money is being spent, but their security is most likely going to increase in value as a result.
On the other hand, if you wanted to raise capital to fund your gambling habits then the lender will not oblige, hardly a sensible example but you get the gist!
When raising capital the lender will apply specific criteria to your application so it’s important get advice if this is something you’re considering, your Advantage adviser will be aware of the lenders criteria when researching the market for you to ensure that not only is your mortgage approved but the money is made available to you when you need it.
The second charge lender is taking on more risk having the ‘second bite of the cherry’ and because of this the interest rate and fees for a second charge loan are often high. Second charge mortgages have been regulated by the Financial Conduct Authority since March 2016, since then the market has shrunk but the costs have reduced mercifully. This type of additional borrowing is generally reserved for those who are unable to secure the money they need through options 1 and 2.
How can I raise capital?
- Further Advance – This means staying with your existing lender and borrowing the additional money you need with them. This is usually the quickest way to get your hands on extra cash because the lender already has a charge registered against your property, therefore there is no need for a conveyancer. On the downside, you often won’t have many options regarding the type of product the additional borrowing is on. Most lenders will have specific products reserved for further advances and the interest rate is not likely to be anywhere near as low as your mortgage. More often than not, the reason you might opt for a further advance is simply because the maths works out in its favour when compared to remortgaging and increasing the balance. Your adviser will compare all options and make sure you are aware of the costs associated with each before you make a final decision.
- Remortgage – An ideal time to capital raise is to coincide it with your next remortgage. Your remaining balance plus the additional amount you are looking to raise will be make up the new loan amount. It’s that simple, when your remortgage completes your conveyancer will transfer to you the surplus funds for your desired purpose.
- Second charge – Your mortgage lender will take out a charge on your property. This essentially means that in the event of a repossession they will have the ‘first bite of the cherry’. The lender will recover the mortgage debt and often the costs associated with the repossession before passing the remaining monies on to you. A ‘Second Charge’ mortgage is one that legally recognises that the mortgage lender holds the first charge and therefore is entitled to recover the money due to them before the second charge lender can recover their money.