Common Remortgage Mistakes to Avoid: Expert Tips for Faster Approval
Background
Remortgage Lenders will have their own set of rules as to what is an acceptable reason to raise money – so don’t be caught out so lets take a look at the Common Remortgage Mistakes.
The common acceptable capital raising reasons include funds for non-structural home improvements, buying a car, paying for a wedding, a holiday of a lifetime, buying out a fellow title holder who is leaving the property, and being removed from the mortgage. So the reason the Lender turned you down is unlikely to be these.
However, if the capital raising was for a different purpose, you would probably have need to do some prep work to present the rationale to the Lender or simply select one that is more suited to your needs. Some pointers are below, but bear in mind that all cases should be discussed with a suitable professional mortgage broker, such as Niche Advice.
Common Remortgage Mistakes on Debt Consolidation Remortgages
In this context it normally means transferring unsecured personal debts onto your home. As non-payment of the remortgage could result in repossession Remortgage Lender are wary when applying this process and some chose to steer clear altogether.
Common Remortgage Mistakes on Loan-to-value
This is a percentage to express the amount of equity in your property. For example, if your property was worth £100,000 and you looking to apply for a £50,000 mortgage this would be expressed as 50% loan-to-value or 50%LTV. It’s a pivotal marker for capital raising, and often, you will find Remortgage Lenders are more flexible on purpose at 75% or below, as they have a 25% buffer should they need to repossess.
Capital raising purposes that may need extra consideration
Common Remortgage Mistakes to Purchase a buy-to-let
Whether it’s to fund the deposit or buy a property outright, the Lenders ask for varying degrees of detail. Usually, they want to know the purchase price, mortgage balance, and monthly cost. Others might want to see the Memorandum of Sale, Mortgage illustration, or Mortgage Offer or insist on a simultaneous completion. So if you just wanted the funds in your bank to look for a future purchase this might not be acceptable. I suggest you talk this through first with your Mortgage Broker.
Purchase a buy-to-let under a limited company
The lender choice drops significantly if you want to raise money on your residential property to fund a buy-to-let purchase under a limited company; this is because it’s viewed as “business purposes”. Those that do offer the facility will generally look for mirroring of the applicants and directors of the Company. For example, you own your residential property with your spouse, and you are also a joint director of the limited company in question.
Buying a second home
If you have sufficient equity to raise money to purchase another property outright then the risk will not be seen as that great. If it involves another mortgage details will need to supplied and cost factored in. Furthermore, the Remortgage Lender will be reassured that their property will be resided in, and ideally for the majority of the time, by you or your immediate family. They will factor in the household bills for both properties in their affordability assessment. They will also seek the rationale for buying a second home such as to house an elderly relative or a place to reduce commuting time to work.
Remortgage to pay off second charge
If the remortgage is simply to clear your existing first charge mortgage and pay off the a second charge secured loans as well, most Remortgage Lenders will see this as a straight-balance transfer of secured debt i.e. no capital raising. However, be careful as there are a few Lenders that will see this as debt consolidation and may not lend or limit the LTV.
Remortgage to gift to family
The Remortgage Lender will ask for the reason for the “gift”, common examples include helping a child buy their own home or fund a wedding. In short the reason needs to make sense.
Sending money to family abroad might increase the line of questioning.
Structural home improvements
If you are looking to enlarge the property, such as an extension, then this normally okay, and in the legal stage planning permission evidence may be sort. If however you are building an annex or outbuilding then commercial use of these could be a problem.
Also if plans are to knock the property down and rebuild it, or knock through to an adjoining building then these are likely to be turned down as unacceptable remortgage purposes as the Remortgage Lender needs a set security to lend against.
Buying adjoining land
The intention for the land will be sort by the Remortgage Lender to make sure it does not impact on the security they are lending against. For example, erecting a building(s) that impacts the view, access, or is undesirable.
Extending a lease
This capital raising reason adds value so what’s the problem? Well there should not be a problem unless you are looking to factor in the property value based on post lease extension. For example, your property is worth £125,000 with the current lease, and £150,000 once the lease has been agreed and paid for from the freeholder. Some Lenders will base the remortgage on a value of £125,000 which might not release enough money or attract a worse rate. If you want or need the £150,000 to be used, then you should discuss this with your mortgage broker so that the appropriate remortgage lender is selected.
Remortgaging to split titles
It is becoming popular to “sell of your garden” or convert a house into flats. A remortgage is not normally the right vehicle to achieve your objective as the footprint of the security will change. It can be deployed later in the chain, but normally, development finance/bridging will need to be used for the initial funding before converting it to a remortgage(s) once the build has taken place.
Early repayment charges
It is rarely a good idea to remortgage when your current mortgage is inside an early repayment charge (ERC) period. This detail can be found in your original Mortgage Offer document. If, however, there is an urgency to remortgage, then the take-out Remortgage Lender may consider including the ERC amount in the remortgage. This is normally categorised as “debt consolidation”, so you will need to check carefully.
Common Remortgage Mistakes for Capital raising for investment purposes
This is generally not liked by Remortgage Lenders. The starting point here is how speculative the investment return is. And steady investments will need to outperform mortgage interest rates, which can be hard to achieve. Timeshares and Cryto purchases are almost certain to decline. The involvement of a Financial Adviser here is, in our view, essential.
Medical bills
Cosmetic surgery is normally okay. If the problem is “health-related”, then the ability to service the mortgage long-term may be called into question as it may impact the ability to perform your current job. It is likely the Remortgage Lender will default on their “vulnerable persons” policy in their lending decision-making.
Repaying friends and family
An audit trial is the key here. Unlike personal finance, these are likely to be informal agreements and will not show on your credit record, but a bank statement showing the money lent to you in the past or an invoice paid on your behalf will normally suffice.
Increasing your equity share in your property
With schemes such as Shared Ownership and Help-to-Buy, you would have been part-owners. Most Schemes allow you to increase the percentage of ownership over time. The Remortgage Lenders prefer their transaction to make you an outright owner however a few will allow a simple increase. This should be discussed first with your Mortgage Adviser.
Remortgaging a property purchased under Right to Buy
Outside of the discount reclaim period (normally 5 years), the Remortgage Lender choice is normally decent, given that the property is good. If you are inside the pre-emption discount period, then first, you will need to check with your Local Authority if they will permit capital raising, and if they do, it is almost certainly going to be limited to home improvements and any other type of capital raising will probably need to go on a second charge secured loan.
Tax bills
This is debt consolidation and, unfortunately, the most challenging. Only a few Remortgage Lenders will take the repayment of tax bills. The type of tax can make a difference to your acceptance, and the shorter the problem has been running, the better.
Raising money for causes
It is normally a function you’d expect from a company rather than an individual. It would need to be talked through and the Remortgage Lender would not want to be associated with anything that could produce a risk to their reputation.
Raising money for Business purposes
Generally, residential mortgage lenders shy away from anything that has to do with businesses. A thriving and established business that wants to increase its stock is better received than a business start-up. Using your residential property to fund the purchase of a business lease or premises is complex.
Conclusion
A full investigation into Remortgage Lender’s capital raising policy and how to avoid it should be done in advance of applying for a mortgage to avoid disappointment and a blemish on your credit record. It’s therefore advisable to seek help from a suitable professional Mortgage Broker, such as Niche Advice.
