Remortgaging to Release Equity: A Complete Guide

There are many benefits to remortgaging. These include the ability to reduce your monthly mortgage cost or overall monthly term as well as being able to fund those much sought-after home improvements.

In this guide we cover why you might consider remortgaging for home improvements, together with important factors to consider before you go ahead with putting your personal stamp on your own home.

Why you’d consider remortgaging for home improvements

Experts have said that investing in your existing home is more cost-effective than relocating to a new property in order to fulfill your home requirements.

Remortgaging your home for home improvements, and using the equity towards home improvements, is one of the main options available for securing funds to help complete the intended work on your home. Whilst completing work on your home can help fulfil your goals of your dream property, it could also assist in making you more profit on your home if you are looking to renovate to re-sell.

Even though you will be taking out a loan against your mortgage, by remortgaging you could potentially look at going onto a lower fixed rate mortgage. This could help reduce your monthly payments if your current equity outweighs your existing mortgage balance.

How do I remortgage to release equity?

Releasing equity through a remortgage means taking out a new, larger mortgage than the one you currently have, and receiving the difference as a cash lump sum. You still own your home, and you still have a standard residential mortgage — it’s simply for a higher amount.

The process usually runs like this:

1. Work out how much equity you have. Subtract your outstanding mortgage balance from your property’s current value. If your home is worth £350,000 and you owe £250,000, you have £100,000 of equity.
2. Decide how much you need to release. Borrowing more than you need means paying interest on money sitting in your account. It’s worth getting quotes or firm figures before you apply.
3. Check what your current lender offers first. Your existing lender may offer a further advance — additional borrowing on top of your current mortgage, often without the cost of moving lenders. This isn’t always the cheapest route, but it should always be compared. We do this as standard before recommending anything.
4. Compare the wider market. Rates, fees and lending criteria vary considerably. A lender who will happily lend for a loft conversion may decline the same application for debt consolidation.
5. Apply, valuation, and completion. Your new lender will value your property and assess affordability. Once approved, the new mortgage pays off your old one and the surplus is transferred to you.

Most remortgages take between four and eight weeks from application to completion, though this varies by lender and how quickly documents are provided.

Important factors to consider when remortgaging:

Equity:

One of the first and most important things to think about when considering remortgaging your home for home improvements is the current level of equity you have in your home. This is easily calculated by subtracting the value of your outstanding mortgage from the value of your property.

For example:

If your property is currently worth £350,000 and your current mortgage balance is £250,000, then you currently have £100,000 of equity in your home. The term LTV – Loan to Value – is often used when remortgaging and is the ratio of loan compared to the existing value of the property. In this current example your LTV would be 71.4%.

Lenders consider LTV to determine the risk when lending you additional funds. A high LTV would result in less equity and security, and could result in higher rates and a harsher lending criteria in comparison to a lower LTV.

Your existing mortgage:

Before considering applying for a higher loan amount, ensure all your monthly mortgage payments are up-to-date and that by borrowing more you are not over-exceeding your maximum affordability. In most circumstances this should be okay – but it’s important to consider any changes you’ve had in your personal circumstances, such as change of income or an increase in financial dependants.

By remortgaging, you may increase your existing mortgage term depending on the option you select when applying. Although predicting your situation over the next few years can be difficult, your mortgage is most likely your biggest financial commitment and by increasing your mortgage term you are making a further commitment. Once you have applied for the funds and have had them approved, you are responsible for paying them back. So, if your circumstances do adjust in the future, it is important to consider this factor.

Your current financial circumstances:

When you apply for a remortgage on your property, it’s important to remember you are essentially re-applying for a mortgage. Therefore, you are subject to the same criteria as before. This will include your debt-to-income, your disposable income, your credit score and existing loans you may have.

And when you remortgage for home improvements with the intention of making money in the long run, it’s also important to remember that initially you are increasing your loan amount. Therefore, it’s important both yourself and your mortgage provider feel comfortable when it comes to increasing your existing amount.

An idea of your overall cost:

If you are intending to complete multiple improvements in your home, having an idea of the overall cost will make your application process easier. It will also help to ensure you are only borrowing what you require and that you are applying for enough funds to complete the intended work. It is a good idea to get quotes in advance to help you decide how much you need to borrow.

How much equity can you release when you remortgage?

There’s no single answer, because it depends on three things: your property’s value, your outstanding balance, and what the lender will allow.

Most mainstream lenders will lend up to 85–90% loan-to-value (LTV) on a standard residential remortgage, though the best rates are usually reserved for those borrowing at 75% LTV or below.

Here’s how that works in practice on a £350,000 property with a £250,000 mortgage:

Two important caveats:

• LTV is a ceiling, not a guarantee. You also need to pass the lender’s affordability assessment on the full new balance. Being under the LTV limit doesn’t mean the lender will lend you that amount.
• The reason for borrowing matters. Lenders treat home improvements far more favourably than, say, debt consolidation or gifting a deposit. Some will lend to 90% for improvements but cap capital raising for other purposes at 75% or 80%.

Figures are illustrative. Your own borrowing will depend on your circumstances and the lender’s criteria.

Remortgaging to release equity vs equity release: what’s the difference?

These two terms sound almost identical and are frequently confused, but they describe very different products.

Remortgaging to release equity (sometimes called capital raising) means taking a larger standard residential mortgage. You make monthly repayments as normal, the debt reduces over the term, and you’re subject to the usual affordability and income checks. It’s available at any age, provided you can demonstrate you can afford the repayments.

Equity release is a specific category of product — usually a lifetime mortgage — designed for older homeowners, typically aged 55 and over. There are generally no monthly repayments; the interest rolls up and the loan is repaid when you die or move into long-term care. Because interest compounds over many years, the total amount owed can grow substantially, and it reduces what’s left to pass on.

For most homeowners still working and with a mortgage in place, a standard remortgage is the more straightforward and usually cheaper route.

A note on what we advise on. ChoiceMortgages UK Ltd advises on standard residential and buy-to-let mortgages, including capital-raising remortgages. We do not advise on lifetime mortgages or home reversion plans. If equity release is likely to be the better option for your circumstances, we’ll tell you and point you toward a specialist adviser.

Should I remortgage before or after making improvements to my home?

Depending on the level of work being carried out, and your current financial situation regarding the funds you have available, you may consider remortgaging after you have completed the improvements to your home – especially if they will add a substantial value to your property. You may be eligible for lower rates of interest if your LTV is a lesser amount.

However, in most circumstances the funds are not always available beforehand. Remortgaging first, and then using the funds towards completing the improvements may be your best option.

What can you use released equity for?

Lenders will ask what the money is for, and their willingness to lend varies by purpose. Commonly accepted reasons include:

• Home improvements — extensions, loft conversions, new kitchens and bathrooms. Generally the most straightforward, particularly where the work adds value.
• Debt consolidation — possible, but lenders apply more caution and you should think carefully before securing previously unsecured debt against your home.
• Helping a family member with a deposit — widely accepted, though the lender will want to know the money is a gift rather than a loan.
• Buying a second property or a buy-to-let deposit — accepted by many lenders, subject to affordability on both properties.
• Paying a divorce settlement or transferring equity — a common and well-understood reason.
• Funding a business — much more restricted; relatively few mainstream lenders will consider it.

Lenders will usually not accept borrowing for speculative investments, gambling, or paying tax bills.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

What does it cost to remortgage and release equity?

The costs are broadly the same as any remortgage, though releasing a larger sum can push you into a higher LTV band and therefore a higher rate.

• Arrangement or product fee — typically £0–£1,500 depending on the deal. Sometimes it’s worth paying a fee for a lower rate; sometimes it isn’t. The maths depends on how much you’re borrowing.
• Valuation fee — often free on remortgage deals, but not always.
• Legal fees — many remortgage products include free legal work.
• Early repayment charge (ERC) — if you’re still within a fixed or discounted period on your current mortgage, this can be substantial. Always check this first; it’s the single most common reason a remortgage doesn’t make sense.
• Broker fee — ours is explained in full at your first appointment, before you commit to anything.

You’ll also be paying interest on a larger balance for longer, which is the real cost and the one that’s easiest to overlook. Extending your term to keep monthly payments manageable means paying considerably more overall.

How ChoiceMortgages UK Ltd can help

Whatever your requirements may be, we can help with your remortgage. We have helped thousands of clients all over the UK, so whether you are local or live further afield – we can assist you and lead you through the process of remortgaging.

We are specialists in what we do. We understand the lending criteria and also have access to the whole mortgage market. After an initial free consultation, we will have an understanding of your circumstances and will be able to ensure that your existing lender options have been considered. Let us take the hassle away and provide you with a tailor-made solution. Don’t let busy lives get in the way of you finding a remortgage that is right for you.

Common questions

Can I remortgage my house to release equity? In most cases, yes — provided you have enough equity, meet the lender’s affordability criteria, and aren’t tied into a deal with a large early repayment charge. The amount you can release depends on your property value, outstanding balance and the lender’s maximum loan-to-value.

Can I release equity when remortgaging if I have bad credit? It’s often still possible, though your choice of lender narrows and rates are usually higher. Specialist lenders consider applications that mainstream banks decline. What matters most is the type, size and recency of the credit issue.

How to remortgage to raise capital — is it the same thing? Yes. “Raising capital” and “releasing equity” describe the same process: increasing your mortgage to access cash tied up in your property.

Will releasing equity increase my monthly payments? Usually, though not always. You’re borrowing more, which pushes payments up — but if you’re moving from an expensive standard variable rate to a competitive fixed rate, the saving can partly or wholly offset the increase.

Can I release equity if I’m self-employed? Yes. Lenders typically want two years of accounts or SA302s, though some will consider one year. Self-employed applications benefit particularly from broker involvement, because lender criteria vary so widely.

Do I need a valuation? Almost always. If your property has risen in value since you bought it, this works in your favour — a higher valuation means a lower LTV and access to better rates.

How long does it take? Typically four to eight weeks from application to completion, depending on the lender and how quickly paperwork is returned.