Can you Remortgage a Buy to Let to Release Equity? Guide

"Are you keen to learn about remortgaging a buy to let to release equity? This guide will help answer all your questions and put your mind at ease.

In this article, we’ll cover:

• What remortgaging means.
• How remortgaging works on a buy to let property.
• How to get a realistic quote for remortgaging.
• The process of releasing equity.
• Different ways to release equity from a buy to let property.

We know that understanding equity release can be a bit difficult, but we’re here to help you. Our advice is easy to follow and will guide you through the whole process. We understand what it feels like to be unsure about financial decisions, and we’re here to make it all a bit easier.

So, if you’re ready to learn more about remortgaging a buy to let to release equity, let’s dive in!”

What is remortgaging?

Remortgaging is when a homeowner changes the first charge mortgage on their property. They swap their existing mortgage for a different mortgage deal, either with their current provider or a different one. The main reason for remortgaging is to secure a lower fixed interest rate for a set duration, saving the homeowner money on monthly interest payments. 

When you remortgage, the money from the new mortgage is used to pay off the original mortgage deal. As the existing mortgage is being paid back earlier than agreed, it may trigger early repayment charges. Once you have remortgages, the same rules apply. You must keep up repayments on your mortgage or your home may be repossessed and sold to pay off the debt. 

It’s common to remortgage a residential mortgage – i.e., the mortgage on the home you live in –  but is it possible to remortgage on an investment property?

Understand the estimate before proceeding

An equity release calculator can give an estimate based on limited information. It is not an offer or a suitability assessment. Equity release reduces your estate and can affect benefits and future care funding. Compare alternatives and obtain specialist financial and independent legal advice before proceeding.

Can it be done on an investment property?

Yes, it is possible to remortgage your investment properties as well as your main residence. If you have a buy to let mortgage on a property in the UK, you’ll be able to search for a better buy to let mortgage with other lenders and potentially switch to save money on interest payments or for other improved terms. You’ll only be able to remortgage to another buy to let mortgage if you intend to continue renting out the property to generate rental income.

How does it work?

Remortgaging from a buy-to-let mortgage to another buy-to-let mortgage works in the same way as you would switch residential mortgages. If you currently owe £100,000 on your existing mortgage, you’ll need to secure another appropriate mortgage deal of at least £100,000 to pay off your existing deal. You might need more to cover any fees, such as early repayment charges. 

To remortgage, you might choose to engage with a mortgage adviser who will explain your options and search for mortgage lenders to find you suitable deals. If you decide to get mortgage advice, make sure the company you use is authorised and regulated by the Financial Conduct Authority.

What is releasing equity?

Releasing equity is accessing some of the monetary value in an asset, such as a house you own. To understand what releasing equity is in detail, you need to know how home equity is calculated. 

Home equity is the value of the property that you own outright with no attached debt. It can be calculated by adding up all of the debts attached to your property and then subtracting this number from the up-to-date value of the property. 

For example, most people only have one debt attached to their property, namely their first charge mortgage used to help purchase the property. Let’s imagine you bought a £200,000 home with a £50,000 deposit and took out a £150,000 mortgage. After so many years of repaying your mortgage, you pay off another £40,000 and during the same period, the value of the property increases by 10%.

You now own a £220,000 property with an outstanding mortgage balance of £110,000. In other words, you have 50% home equity, which in this case equals £110,000. 

Releasing equity is using one of many methods to access some of this money as a cash lump sum or drawdown facility. You leverage the value in your asset to spend the money in other areas or for other investments. 

For a buy-to-let remortgage, ask a broker or lender for an assessment based on property value, existing debt, rental coverage and lending criteria. A lifetime-mortgage equity-release calculator is not a substitute.

Can you do it by remortgaging?

One of the most common ways to release equity is to remortgage. So, how do you remortgage to release equity?

It’s quite straightforward. As described earlier, remortgaging is switching your mortgage from one deal to another deal. To release equity at the same time, the homeowner asks to borrow more on the new mortgage, and this additional money is secured by the homeowner’s available home equity. 

For example, if you want to remortgage a current mortgage of £70,000 and also have £60,000 equity in the property, the homeowner may ask for a new £100,000 mortgage. £70,000 of this amount is used to pay off the first mortgage and the remaining £30,000 is borrowed for another purpose, secured by the available home equity. 

Are they the same?

Remortgaging can release some property equity by increasing secured borrowing. It is distinct from the later-life products usually called equity release, such as lifetime mortgages and home reversion.

1. You can remortgage without releasing equity.
2. You can release equity using other methods, which will be discussed at the end of our guide.

Can I possibly do both?

It is possible to remortgage buy to let mortgages and simultaneously release equity from the investment property. This simply works by swapping one buy to let mortgage for another one while also asking to borrow extra due to your available home equity. 

Interestingly, if you own a number of rental properties, you may be able to remortgage to a portfolio mortgage where all repayments are made through one monthly repayment. When you get a portfolio mortgage, you can still release equity at the same time. 

» TAKE ACTION NOW: Find out how much equity you could release

Can I use equity release?

A residential lifetime mortgage is normally designed for the borrower’s main home. Do not assume it is suitable or available for a rented investment property; ask a specialist adviser about actual product eligibility and alternatives.

Any specialist borrowing against a let property has its own eligibility, repayment, tax and tenancy implications. Confirm current availability rather than assuming standard residential equity-release terms apply.

Common reasons to do it

One of the most common reasons for releasing equity from an investment property is to either complete home improvements on the same property or to help buy another investment property. 

Improvements may affect a property’s value or rent, but neither an increase nor a return on investment is guaranteed. Borrowing adds costs and risk, and any rent change must comply with the tenancy and applicable law.

These are not the only reasons people decide to release equity from an investment flat or house. Others release equity for personal spending, to pay off debts and to renovate their own residence. 

How much can I release?

Lenders normally express the borrowing limit as loan-to-value: a percentage of the property’s value, not a percentage of your existing equity. The actual maximum also depends on rental coverage, affordability where relevant and lender criteria.

The cash released is broadly the new mortgage advance minus the existing secured debt, fees and any other required deductions.

Illustration only: at an assumed 75% loan-to-value limit, a £200,000 property could support a £150,000 mortgage. If £100,000 must be repaid on the existing mortgage, this leaves £50,000 before fees. The assumed limit is not an offer.

Can I switch and release at the same time?

If you plan to let a home with a residential mortgage, obtain the lender’s permission. Depending on the circumstances, consent to let or a buy-to-let remortgage may be required.

Switching depends on lender approval, property suitability, rental coverage and costs; existing equity alone does not ensure acceptance.

If you want to release equity at the same time as switching from a residential to a buy-to-let mortgage, you’ll need to have even more home equity. Overall, it is possible, but you may not be able to release as much equity as if you were just switching residential mortgages. 

Is it a good idea?

Remortgaging to release equity from any residential or investment property can be an effective way of accessing large amounts of cash at a competitive interest rate. It shouldn’t be done without good reason and intention to use the money, and it shouldn’t be done before receiving sound advice from an independent mortgage adviser.

Alternative Methods

As mentioned earlier, remortgaging can be a vehicle to release equity but it is not the only method available. Here are some alternative ways to release equity from an investment property.

#1: Second charge mortgages

Other options may include a further advance or second-charge mortgage, where available and suitable. Do not assume US-style home-equity lines of credit are generally available on the same terms in the UK. See related guidance.

A second-charge loan may avoid redeeming the first mortgage immediately, but it has its own interest, fees and possible early-repayment charges. Compare the total cost and the risk to the property.

#2: Lifetime mortgage equity release

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product.

Standard residential lifetime mortgages usually concern the borrower’s main residence. Ask a specialist adviser before considering any product secured on a let property.

What happens if I’m declined?

Another option is secured loans. A secured loan might be an alternative to think about if you don’t want to remortgage or consider equity release (or you’re not eligible for either). Essentially, this is a second mortgage that is backed by the equity in your home.

Quick Recap!

How much cash a buy-to-let remortgage can release depends on property value, permitted loan-to-value, existing debt, rental coverage and fees. It is not calculated simply as 75% of current equity.

Things to consider

Equity release includes lifetime mortgages and home reversion plans. A lifetime mortgage is a loan secured on your home; a home reversion plan sells part or all of the property. Equity release reduces what may be left in your estate and can affect means-tested benefits and future care funding. A lifetime mortgage is usually repaid when the last borrower dies or moves permanently into care, subject to the plan terms. Specialist financial and independent legal advice are needed. Any existing mortgage must normally be repaid from the proceeds or other funds. Age Partnership publishes an advice fee of £1,995 payable on completion; confirm the current fee in your personalised illustration. Lender and legal fees may also apply.