Is there cash tied up in your property?
Have you given it some thought, do you have a plan, do you know what you want to achieve, can you answer the where, what, why, when questions? because if you can't, you are not ready to speak to your broker yet. You need a plan, you need to have done some research, you need a good team around you and you may need to invest in some education and advice. The internet will provide lots of information but unfortunately, it won't all be good or correct. If you are going to pay for education and/or advice, make sure it comes from qualified professionals, avoid the over inflated claims from those trying to sell books, videos or expensive courses.
- Where – you should buy?
- What – you should buy?
- Why – you should buy?
- When – you should buy?
- How – you could finance the plan?
Here are the possible property financing options and the potential problems you could face:-
1. A capital raising mortgage
You could approach your existing lender or, ask your broker to do this for you. This is called a further advance or a capital raising remortgage. If the deal you are on is really good or, you are tied in then you don’t want to pay more for the same money or suffer those penalties
potential problems – not all lenders like this, business purposes and all that, particularly if you are going down the corporate structure route. Capital raising with no onward purchase (because, maybe you haven’t found the right property yet) some lenders don’t like this either and if you haven’t found the right deal, how long do you want to pay the extra repayments while your cash just sits in the bank earning zip
2. Remortgage to a new lender
This might work if the deal you are on is not very good or if your existing lender won’t offer a further advance,
potential problems – pretty much the same as above really just watch those hidden charges though as you are going to incur possible valuation and legal fees, arrangement and broker fees, and make sure you are penalty free
3. Take a 2nd charge secured loan
Another loan with another lender, keeping your existing mortgage. If you are on a good deal, you can keep it, if you are tied in, no penalties as you are not repaying the mortgage, if existing lender won’t lend for business purposes, the 2nd charge lender may be OK with this
potential problems - like the name suggests 2nd charge means your existing lender has the first charge over your property (if it all goes wrong they get their money first when you hand the keys back) the other loan although secured sits behind the 1st which means it’s riskier for the lender and they are going to charge a higher interest rate, not too silly but higher. The loans mentioned in 1,2 and 3 are regulated if you are borrowing against your main residence, not so with investment buy to let, they are not always quick to arrange, and you need to prove you can afford the repayments or the rental income needs to stack up to the lender's stress testing
So, that’s about it then or, at least it would be if you were talking to your average residential mortgage broker, high street lender or mate down the pub. But you are not hopefully, you are talking to a specialist broker and that means they can discuss open plan accounts, flexible mortgages on residential and/or buy to let, short term finance, equity loans, rolling credit facilities, bridging loans, refurbishment loans, development finance
Now you can really make that equity potentially work for you. You may be able to; not pay interest until the cash is needed, only take the money for as long as its needed not 25 years, pay it back penalty free, buy those properties that are unmortgageable and if you get the right help and professional advice YOU CAN GET THE MONEY FAST
You could have cash on tap like an overdraft, drawdown what you need when you need it. You could refurbish a property to add value and borrow the funds to do the work, you could negotiate like a cash buyer and so much more. Don’t get carried away though let me repeat options 1,2 or 3 may still be the right deal for you, you just need to know all the options
potential problems – yes of course, too many to get into with so many options available. You need to understand what you are doing, you need a good accountant, the right legal team, good tradesmen and a really good property finance broker. You need to work hard, do your research and due diligence, read your contracts and legal documents properly and take what you read on social media with some scepticism remember, if it looks too good to be true then it probably is, you need a bit of luck, and some say you make your own luck… happy hunting