re-mortgaging and releasing equity

Dowie

Hi, I'm in the position where I'd like to release some equity from my flat - currently I have over 50% equity (thanks London price rises).

The query I've got is how easy is it to re-mortgage and say take 40 or 50k or so out at the same time... if I try to do so with my current provider then they'll create a separate loan agreement and stick me on some silly 3 or 4% rate for that additional loan... whereas switching to other providers should keep me below 2% rates for the whole loan.

My query relates to what I should tell the bank/IFA about the reason for re-mortgaging. I spoke to an IFA a while ago about the possibility of doing this and mentioned that I wanted to 'invest' the funds - which was true at the time... the IFA mentioned that I couldn't say that and it would be better if I wanted the additional funds to buy a car (this seems slightly odd in so far as I can seemingly state I'm going to buy an asset that is guaranteed to depreciate the moment I buy it but can't propose investing in assets that might well give a better return).

The actual reason for wanting additional funds now is simply because I potentially want funds for a masters degree + living expenses for a year in London + some traveling prior to the degree + some home improvements + stashing some more cash away in savings/investments just in case I need it after graduating/before new job etc.. I've got enough equity that I could happily remortgage with a larger loan and still have access to below 2% rates, my current salary would be enough to cover the potential loan - the total loan amount would still be below 4* annual salary. I'd suspect though that most banks are not going to allow me to re-mortgage if I actually state that part of my plan is to quit working for over a year/have no income....

So what are the best reasons to give for remortgaging for an amount greater than your current loan? Does saying that you want the cash for a new BMW really present less of a risk to the bank than wanting to invest the money?

betmunch

The best and only reason you can give is the actual reason.
You need to find a lender which will lend to you for the purposes you state.

Dowie

Thanks for the reply - could you expand on your reasons? Would that not limit me on the range of mortgages or potentially even leave me unable to find such a provider.

There are multiple reasons for me requiring the funds - my query really was whether some reasons are more acceptable to lenders than others and if so what reasons are more acceptable? For example is wanting to buy a car more acceptable than wanting to invest in a tracker fund? etc..?

If I said I wanted to use funds to buy a car for example - would they demand proof that I'd bought a car? If not then where is the risk if I were to just keep it simple and do something like that?

I'd also be quitting my job if I chose to pursue a masters full time - I don't necessarily see why that would need to be declared right now - I'm not completely sure I will do that necessarily - it is one of a few options - depending on what courses I get accepted to I might end up studying part time, keeping my existing job, I might negotiate some unpaid study leave or flexible hours. I might end up working one or two days a week as a consultant for a client(have discussed the possibility with them). I'd rather just keep things simple, remortgage my flat and have the funds available for a variety of potential options as I'm not sure yet what I'm going to do yet but having the funds available now would be useful.

betmunch

Of course.


The reason is if the lender asks you a question its because they consider the answer relevant to their lending decision.


They will want to know what you want the extra money for as there are set purposes they will refuse, while many state "any legal purpose" is acceptable, in reality if you want it to do anything that would hint at a change in your income the lender will likely decline the case.


The lender will also ask you if you know of any reason why your income might decline, or expenditure increase, again they will want an honest answer from you.


I suspect that the reasons you give for the extra money would not be acceptable to any lender, certainly none I can think of off the top of my head.


To lie on the application would be mortgage fraud and I am sure that you wouldn't want to do that.

Dowie

Thanks for the expanded reply. Absolutely I wouldn't want to do that, but I might chose now to buy a car and carry out some home improvements, pay for a part time course... I might later change my mind and decide that actually a full time course would be a better option in which case my plans to buy a new car might have to go on hold, or I might have to look at a more modest vehicle. Assuming they aren't going to require immediate proof that I've purchased a car (I take my time in making such purchasing decisions) then I guess that I might make an application along those lines and have the funds in place to cover a variety of options.

betmunch

As long as you give honest answers and have the right lender for lending money for those purposes you will be fine.

Thrugelmir

Dowie wrote: »

The query I've got is how easy is it to re-mortgage and say take 40 or 50k or so out at the same time... if I try to do so with my current provider then they'll create a separate loan agreement and stick me on some silly 3 or 4% rate for that additional loan... whereas switching to other providers should keep me below 2% rates for the whole loan.

If the purpose of the money isn't to either buy property or improve your current one for example. Then the lender may decide to offer a rate more in line with the actual purpose. Residential property isn't an ATM as far as the lenders are concerned. Low rates = low risk=low margin. Changing the scenario changes everything.

Dowie

Interesting - if I sold my flat and bought an identical one next door say with a larger mortgage/smaller deposit say 30% deposit instead of 50% I'd just get the advertised rate. But if I want to remortgage my existing property to end up in the same situation with regards to equity then they'd class it as higher risk?

Foxy-Stoat_3

Dowie wrote: »

Interesting - if I sold my flat and bought an identical one next door say with a larger mortgage/smaller deposit say 30% deposit instead of 50% I'd just get the advertised rate. But if I want to remortgage my existing property to end up in the same situation with regards to equity then they'd class it as higher risk?

Yes, thats about right.