Should you remortgage to invest in property?

Posted by Mark Lloyd, Property Mastery Academy on 29 October 2018 | Comments

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It’s become common practice to use equity that’s built up on your home or a property in your portfolio to invest in a new property.

As a property investor, there are many different strategies you can use to fund new investments and equity release is just one of them. If you’re uncomfortable with the idea of taking equity from your home to finance your investment, then there are plenty of other options to choose from instead.

However, if you’re keen to make use of the equity that’s locked away to fund a buy-to-let property, here are some of the fundamentals you need to consider.

Equity release scheme

Buy-to-let mortgage deposits

Generally, the minimum deposit for a buy-to-let mortgage is 25% of the property's value. Take a good look at the types of deals each lender is offering.

You could also take advice from a broker and they’ll research the market and help you decide on the buy-to-let mortgage that best suits your circumstances. You can also use online comparison sites to compare deals.

In addition to checking out how much deposit you’ll need, you should also look at the Annual Percentage Rate of Charge (APRC) that applies. This will show how much the mortgage deal will cost you. You should be aware of any charges that apply as well as the rate that the mortgage will revert to once the introductory rate ends.

Buy-to-let mortgage conditions

Most lenders require you to be earning an annual income of at least £25,000. Some lenders have other criteria that you’ll need to meet before they’ll offer you a buy-to-let mortgage and they’ll also check to make sure your rental income is sufficient to meet costs.

Often there’s a cap on how much you can borrow, but this can be up to £2m or more. Typically, you can’t take out more than three buy-to-let mortgages.

Releasing your equity

If you decide to remortgage, you’ll need to prove to the lender that you can afford the higher repayments your loan will incur. However, to do this, you can provide details of the rent your buy-to-let will bring as part of your overall income.

They may also ask if you have sufficient funds to cover your mortgage payments if your buy-to-let property should be empty for a period of time and you don’t have rent coming in. You don’t want to default on payments and risk losing your home.

Using equity for refurbishment

Another option is to use the cash that's built up in your property to fund the refurbishment of another property. You may decide to do this as by upgrading a rental property, you can charge higher rents.

Significant upgrades such as adding an extension, converting a loft or fitting new kitchens or bathrooms can be expensive but profitable in the long run. Releasing equity is a good way of funding a costly project. If only a small amount is needed, then it may be more cost effective to take out a personal loan instead.

Is equity release for you?

If you have a lot of equity in the property and are comfortable that the figures work out, then it’s a good way to break into the buy-to-let market or grow your current portfolio.

However, if it’s not a plan you’re comfortable with then there are plenty of other property investment strategies to choose from.

Would you like to learn more about property investment?

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