Understanding Equity and LTV
Your equity is the difference between your home's current market value and what you still owe on your mortgage. The more equity you have, the more scope there is to borrow extra while keeping your loan-to-value (LTV) ratio within a lender's limits.
Most lenders cap capital raising remortgages at 80% to 90% LTV. So if your home is worth £350,000, the maximum total mortgage at 85% LTV would be £297,500. If you owe £200,000, you could potentially raise up to £97,500 in extra funds, subject to affordability.
How Affordability Affects Extra Borrowing
Even if you have plenty of equity, lenders must be satisfied you can afford the higher repayments. They'll look at your household income, regular outgoings, existing credit commitments, and essential living costs. Most lenders use income multiples of 4 to 4.5 times your annual salary as a guideline for total borrowing.
Lenders also stress-test your ability to repay if interest rates were to rise by several percentage points. If your outgoings are high or your income is irregular, you may not be offered as much as the equity alone would suggest. Paying down existing debts before applying can help improve your borrowing capacity.
Getting a Property Valuation
The amount you can borrow is directly linked to your property's current value, which the lender will verify through a valuation. If you've made improvements to your home, it may be worth more than you think. Similarly, rising house prices in your area could have boosted your equity significantly since you first bought.
Some lenders use automated desktop valuations, while others will send a surveyor. If you believe your home is worth more than the lender's initial estimate, you can sometimes request a physical valuation to support your case.
Tips for Maximising Extra Borrowing
To give yourself the best chance of borrowing as much as you need, consider the following steps before applying:
- Pay down or clear credit cards, loans and overdrafts to improve your affordability score
- Make sure your credit report is accurate and up to date
- Gather evidence of any home improvements that may have increased your property's value
- Use a whole-of-market mortgage broker who can identify the most flexible lenders for your situation
Different lenders have different criteria, and some are significantly more generous on income multiples or LTV limits for capital raising. A broker can save you time and help you avoid unnecessary credit checks with unsuitable lenders.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.