Capital Raising Mortgage and Remortgage Advice

A capital raising mortgage means borrowing more against your home than you currently owe, either by remortgaging to a larger loan, by taking a further advance from your existing lender, or through a separate second charge loan. The extra money comes from the equity in your property — the difference between what it is worth and what you owe. Lenders will look at whether the higher borrowing is affordable, what the money is for and how much equity you will have left. Borrowing more increases what you owe and usually the total interest you pay, so it is worth comparing the options and their full costs before you decide.

Why people raise capital

Common reasons for a capital raising remortgage include:

• Home improvements — an extension, loft conversion, new kitchen or energy-efficiency work.
• A buy-to-let or second-home deposit — releasing equity from your home to put down a deposit on another property. The new buy-to-let mortgage is assessed separately, mainly on the expected rent.
• Debt consolidation — repaying credit cards, loans or car finance with mortgage borrowing.
• Gifting a deposit — helping a child or other family member buy their own home.

Lenders will ask what the money is for. Some purposes, such as funding a business or investments, may be restricted or not accepted by some lenders, and others may need supporting evidence.

How lenders assess it

Lenders typically look at:

• Affordability — your income and outgoings are tested against the new, higher balance, usually at a stressed interest rate.
• Loan-to-value (LTV) — the maximum LTV for capital raising is often lower than for a like-for-like remortgage, and it is often lower again where the money is for debt consolidation.
• Purpose rules — you may need builders’ quotes for home improvements, or a list of the debts being repaid. For debt consolidation, some lenders cap how much can be consolidated or pay the debts off directly on completion.
• Credit history and valuation — as with any mortgage, your credit file and the lender’s valuation of the property will affect what is available.

All of this is subject to lender criteria, which vary considerably.

Remortgage, further advance or second charge?

Which route is most suitable depends on your current deal and circumstances.

Remortgage. You move your whole mortgage to a new lender, or a new product, with a larger loan. This can give access to a wider choice of products, but involves a valuation and legal work, and may mean paying an early repayment charge if you are still within a fixed or discounted period.

Further advance. You borrow the extra from your existing lender, usually on a separate product alongside your current deal. This can avoid an early repayment charge on your existing mortgage, but the rate on the additional borrowing may not be the most competitive available, and your lender’s own criteria apply.

Second charge mortgage. A separate loan from a different lender, secured on your home behind your main mortgage. It can be an option where you want to keep your existing deal, early repayment charges are high, or your main lender will not lend more. Rates are often higher than on a first mortgage. Where a second charge may be suitable, this is arranged by introduction to a specialist.

Timing it with your fixed rate

If you are part-way through a fixed or discounted rate, remortgaging to a new lender may mean paying an early repayment charge (ERC), often a percentage of the balance repaid. A further advance or second charge can sometimes avoid this. Alternatively, it may make sense to wait until your current deal ends; we recommend starting a remortgage review around six months beforehand. We will compare the cost of acting now, including any ERC, with the cost of waiting.

Costs and things to consider

• Total cost over the term. Spreading short-term debts over a long mortgage term can cost more overall, even at a lower interest rate.
• Fees. Product, valuation and legal fees may apply, as may an ERC on your existing deal. We include these in the comparison before recommending anything.
• Higher monthly payments. A larger loan usually means a higher payment. You can estimate it with our repayment calculator.
• Less equity. Releasing equity leaves a smaller buffer if property prices fall and can limit your options in future.

Typically, we charge a fee of £375 for arranging a mortgage but will also depend on your circumstances. The fees may be waived subject to the terms of the fee waiver agreement.

Who capital raising suits

Raising capital against your home may be suitable if you have enough equity, an income that comfortably supports the higher borrowing and a clear purpose for the money, and you have weighed it against alternatives such as savings or unsecured borrowing. It may be less suitable if your income is uncertain or the need is short-term. If you are finding it difficult to manage your debts, free and impartial help is available from MoneyHelper.

See all mortgage FAQs →