So you've got some spare equity sitting around, and it's time to add to the portfolio. Rather than sell, you've taken the smart route and decided to keep the property and remortgage some equity out.
Congratulations, Your portfolio is growing!
So, let's look at the two main sources of remortgage finance: your existing lender and a new lender.
I would normally suggest going to your existing lender first, as it’s often the easiest call, followed by new lenders. In many cases, it might be best to use a broker to find a new lender, but it’s rarely worth doing if you’re staying with your existing lender. You can also forgo a broker and go directly to a bank as many banks don’t deal with brokers but that would leave you arranging everything.
While I would love to discuss finance options with you, they change so frequently that it's best to speak with a broker or our team when you're ready to look. However, there are a few additional factors to consider when remortgaging.
Firstly, any remortgage will likely be dependent upon your credit, available equity, and serviceability.
Watch the arrangement fees: Especially when base rates are high and the lender is looking for an easy way to keep the rate (and serviceability) down, they simply load the arrangement fee, and damn, that can hurt.
Consider the market you're heading into: This may affect the rate you will receive and what you should expect. If rates are high, you may be locking in at the higher rate.
In my experience, banks and lenders are far better than you and I, at predicting the future interest rates. So don’t bet against them without good reason.
Consider the capital gains tax (CGT) burden should you sell: Imagine you bought for £100k with a £50k mortgage and then remortgaged every 2 years over 10 years, taking £50k out each time.
So in Year 10, you have a loan of £300k and the property may be worth £600k, if you sold now your capital gain would be based on £600k less £100k let’s ignore the other deductions but your gain would be based on £500k at say 28% or £140. So if you sold the property for £600k, paid back the mortgage £300k, paid the CGT £140k, you are left with only £160k, still not bad, but what if the property sold for £400k?
£400k less £100k = £300k gains tax at 28% or £84k CGT, so after paying off the mortgage £300 and the CGT of £84k, you are left with only £16k, which could have gone towards costs. Not a great deal and that £16k could well have gone in costs.
Working with our team, we can help you through all of these decisions throughout your ownership. Our support takes into account your entire portfolio. We call this our unique approach to portfolio management.
Why not treat yourself to a portfolio review? They're free, and you will come away with clarity on your next steps, potential issues you may be facing, and best of all a strategy of where to go from here.
Live with passion,
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