Yes, you can remortgage an unencumbered property to access the equity and use the funds to purchase a new property in cash. This process is commonly referred to as a “cash-out refinance” or “equity release.”
Remortgaging an unencumbered property
Subject to you meeting residential lenders standard overall affordability criteria, then this would something you should be able to do. By remortgaging you are looking to borrow money from a lender who takes a charge over it. You may own your home outright (like yourselves), which can also been known as unencumbered property (when you own a property outright with no mortgage or loans secured against it), or already have a mortgage on the property and want to change lenders for a better deal or to get more money—either way, it’s known as a remortgage.
Other Ways to Finance a New Property Using Your Existing Home
Alternatively, you could look to do a ‘let to buy’, using your existing property (subject to the rental income it is likely to generate) to capital raise up to 75% of the value, which will then enable you to use the funds to buy the new property. Most buy to let lenders will cap the LTV at 75%, though there a few who would go slightly higher, if you wanted to explore that option.
More and more people are using let to buy to give them greater control over when and for how much they can sell their current property for, and to bolster their income and even for retirement planning.
Here’s how it typically works:
- Assessment of equity – the first step is to determine the equity available in your unencumbered property. Equity is the difference between the property’s market value and any outstanding mortgage or loans secured against it
- Remortgaging process – you would apply for a new mortgage on the unencumbered property, requesting a higher loan amount than the existing mortgage balance. The lender will assess your eligibility based on factors such as income, credit history, and the property’s value
- Valuation and approval – the lender will conduct a valuation of the property to determine its current market value. Based on this valuation and their lending criteria, they will decide whether to approve the remortgage and how much equity you can release
- Release of funds – once the remortgage is approved, the lender will release the funds to you. You can then use these funds as cash to purchase a new property outright or for any other purpose
- New mortgage terms – keep in mind that the remortgaged property will now be encumbered by the new mortgage, meaning it serves as security for the loan. You’ll need to make regular mortgage payments according to the terms of the new mortgage agreement
- Tax implications – there may be tax implications associated with remortgaging and using the released equity for a new property purchase. It’s essential to consult with a tax advisor to understand any potential tax consequences
- Legal process – the remortgaging process involves legal documentation and fees. You’ll need to engage solicitors or conveyancers to handle the legal aspects of the remortgage transaction
Remortgage an Unencumbered Property to Pay Cash for a New One Summary
By remortgaging an unencumbered property to release equity, you can access funds to purchase a new property without the need for a traditional mortgage on the new property. This strategy can offer flexibility and expedite the purchasing process, especially if you prefer to avoid the complexities and requirements of securing a mortgage on the new property. However, it’s essential to carefully consider the costs, risks, and implications of remortgaging before proceeding, and seeking professional advice is advisable to ensure it aligns with your financial goals and circumstances.
Obviously, we would need to know the fuller picture around your financial situation, but it does look promising.
If you’d like to explore your alternatives further feel free to call us on 0203 868 9133.
