Remortgaging to Fund Your Business: Expert Explain

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. You may have to pay an early repayment charge to your existing lender when you remortgage.

Embarking on the journey of entrepreneurship is an exciting yet challenging endeavour. For many aspiring business owners, securing adequate funding is a critical step towards turning their dreams into reality.

One option that individuals often consider is remortgaging their homes to obtain a substantial loan amount. This article provides insights into the process of remortgaging to raise funds, detailing the steps involved, lending criteria, and weighing the pros and cons.

Understanding Remortgaging

Remortgaging involves switching your existing mortgage to a new deal, either with the same lender or a different one. The primary reason individuals consider remortgaging is to access equity tied up in their property. This released equity can be a valuable source of funds for various purposes, including financing a new business venture.

How to Remortgage for Business

Remortgaging for business involves a strategic financial move that allows individuals to access equity tied up in their property to fund a business venture. Here is a step-by-step guide on how to remortgage for business in the UK:

1. Assess Your Equity

Prior to contemplating a remortgage, it’s imperative to assess the present valuation of your property alongside the remaining balance on your mortgage. The variance between these two sums signifies your equity in the property. This equity could play a significant role in determining your options and potential financial gains through a remortgaging process.

2. Consult a Mortgage Advisor

It’s advisable to consult a professional mortgage advisor to navigate the intricacies of the remortgaging journey. They possess the expertise to clarify the financial repercussions, evaluate feasibility, and suggest appropriate lenders, guiding you towards informed decisions in this process.

3. Research Lenders and Offers

Explore different lenders and mortgage products to find the best deal for your needs. Consider interest rates, repayment terms, and any associated fees. A comprehensive understanding of the market will empower you to make informed decisions.

4. Application Process

Once you’ve made your selection of both lender and mortgage product, it’s time to commence the application procedure. Ensure you’re equipped with necessary documentation pertaining to your income, expenses, and credit history. The lender will scrutinise these details to evaluate your capacity to repay the loan.

5. Valuation and Legal Process

As part of the remortgaging process, the lender will conduct a property valuation to determine its current market value. Additionally, there will be legal processes involved, such as conveyancing, to transfer the mortgage.

6. Loan Approval and Disbursement

Upon successful completion of the valuation and legal processes, the lender will approve the loan. The funds will then be disbursed, providing you with the capital raising for your business venture.

How Much Can You Borrow In Business Remortgage?

The amount you can borrow through remortgaging depends on various factors, including your property’s value, the outstanding mortgage amount, and your financial situation.

Typically, lenders may allow you to borrow up to 80% of your property’s value. However, this can vary, and it’s crucial to discuss your specific circumstances with your chosen lender.

Why You Should Consider Remortgage for Business Purposes

1. Access to Capital

Remortgaging unlocks the equity tied up in your property, providing you with a lump sum that can be used to fund your business. This capital injection can be instrumental in covering startup costs, expansion, or other business-related expenses.

2. Lower Interest Rates

Mortgage interest rates are often lower than other forms of borrowing, such as business loans or credit cards. Remortgaging allows you to take advantage of these lower rates, reducing the overall cost of borrowing.

Lending Criteria In Remortgaging For Business

Each lending institution will establish its own set of criteria for loan eligibility and an underwriting process for approving financial assistance. Nevertheless, when assessing a loan application, most lenders will consider the following factors:

  • The credit score of the business owner applicant.
  • The creditworthiness of the business itself.
  • Income and affordability – verifying the business’s income and typical monthly expenses. This often involves scrutinising evidence such as company tax returns, business bank statements, and any additional proof of income sources like tenancy agreements for rental income.
  • Security – Evaluating the amount of property equity or the overall value of other assets presented as collateral for a secured loan.

Pros of Remortgaging For Business

Remortgaging for business purposes can offer several advantages, providing individuals with strategic financial benefits. Here are some pros of remortgaging for business:

A. Access to Significant Capital

Remortgaging can provide a substantial amount of capital, giving you the financial resources needed to start or grow your business.

B. Lower Interest Rates

Mortgage interest rates are typically lower than those associated with business loans, resulting in lower overall borrowing costs.

C. Flexible Use of Funds

Unlike some business loans that may come with restrictions on how the funds can be used, remortgaged funds offer greater flexibility.

Cons of Remortgaging For Business

While remortgaging for business can offer various benefits, it’s important to consider the potential drawbacks and risks associated with this financial strategy. Here are some cons of remortgaging for business:

A. Risk to Homeownership

Your property acts as collateral for the remortgage, which means it’s in jeopardy if you encounter difficulties in meeting the repayments. This is a crucial risk that demands thoughtful consideration before proceeding.

B. Long-Term Commitment

Opting for a remortgage elongates the duration of repayment, binding you to clear the loan over a more prolonged period. This decision could have lasting effects on your future financial flexibility and should be approached with careful consideration.

C. Interest Accumulation

Despite the allure of lower interest rates, the elongated repayment duration might lead to increased cumulative interest payments in the long run. This aspect warrants careful attention as you weigh the benefits against potential long-term costs.

Conclusion

Remortgaging your home to fund a business venture can be a strategic financial move, providing you with the capital needed to achieve your entrepreneurial goals. However, it’s crucial to carefully consider the risks and benefits, ensuring that you have a solid business plan in place and the means to meet the repayment obligations.

Consulting with a professional mortgage advisor can be instrumental in navigating the complexities of the remortgaging process and making informed decisions tailored to your individual circumstances.

At Your Mortgage Expert, we pride ourselves on being the beacon guiding you through the intricacies of mortgage acquisition. Our seasoned consultants, equipped with a wealth of knowledge and a keen understanding of the ever-evolving property market, are committed to tailoring mortgage solutions that align perfectly with your individual circumstances.

Whether you’re a first-time buyer, a seasoned homeowner seeking to remortgage, or anyone in between, our personalised consulting services ensure that your journey to homeownership is smooth and well-informed. Let Your Mortgage Expert be your trusted ally in navigating the complexities of securing a mortgage!

Can I remortgage if my business is not yet operational?

Yes, you can remortgage for business purposes, even if your business is in the planning or early stages. Lenders will assess your overall financial situation, including any projected business income.

Will remortgaging affect my credit score?

The remortgaging process itself may have a minimal impact on your credit score. However, if you struggle with repayments, it can negatively affect your creditworthiness.

Can I use the remortgaged funds for personal expenses?

While there may not be restrictions on how you use the funds, it's advisable to use remortgaged money for business-related expenses to avoid potential complications.

Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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