How Does Borrowing More on a Remortgage Work?
When you remortgage, you replace your existing mortgage with a new one. If your home has increased in value or you've paid down a chunk of your original loan, you may have equity you can borrow against. This is sometimes called a capital raising remortgage.
For example, if your home is worth £300,000 and you owe £150,000, you have £150,000 in equity. A lender might allow you to borrow up to 80% or 90% of your property's value, meaning you could potentially raise a significant sum on top of repaying your existing mortgage.
The extra funds are added to your new mortgage balance, so you repay them over the mortgage term at the mortgage interest rate. This is usually much cheaper than an unsecured personal loan, though you are securing the debt against your home.
What Do Lenders Consider?
Lenders assess two main things when you want to borrow more: equity and affordability. You need enough equity so that the total loan doesn't exceed their maximum loan-to-value (LTV) ratio, and you need to demonstrate you can afford the higher monthly repayments.
Affordability checks look at your income, outgoings, existing debts, and living costs. Lenders stress-test your ability to pay if interest rates were to rise. Having a strong credit history and stable employment will improve your chances of being approved for extra borrowing.
Some lenders are more flexible than others when it comes to capital raising. A mortgage broker can help identify which lenders are most likely to approve your application based on your specific circumstances.
How Much Can You Typically Borrow?
Most mainstream UK lenders will let you borrow up to 85% or 90% LTV on a capital raising remortgage, though the best rates are usually available at 60% or 75% LTV. The actual amount you can raise depends on your property value, existing mortgage balance, income, and outgoings.
As a rough guide, lenders typically offer between 4 and 4.5 times your annual household income as a total mortgage, though some will stretch to 5 or even 5.5 times for higher earners. The extra borrowing plus your existing mortgage must fit within this income multiple.
What Can You Use the Extra Money For?
You can use money raised through remortgaging for almost any legal purpose. Common reasons include home improvements, buying another property, helping a family member, paying for a wedding, or consolidating debts. The lender will usually ask what the funds are for, and some purposes may affect which products are available to you.
It's worth thinking carefully about whether borrowing against your home is the best option. While mortgage rates are lower than personal loan rates, you're spreading the repayment over a much longer period, which can mean paying more interest overall. And if you can't keep up with repayments, your home is at risk.
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.