How to REMORTGAGE to buy a SECOND PROPERTY | Property Investment UK

Summary

This video script outlines a strategy for accessing additional funds through property refinancing or remortgaging. It emphasizes that property serves as a wealth reserve, and by securing a new mortgage, one can unlock equity for various purposes, not limited to property purchases. The script clarifies misconceptions about refinancing, explains the importance of loan-to-value ratios and rental coverage, and details the process of remortgaging, including calculating the redemption figure and selecting a lender. It concludes by advising viewers to consider the costs and benefits, and to use the released funds wisely, potentially for further investments.

Takeaways

• 🏠 A property can be a store of wealth that you can access at any time.
• 💼 Refinancing or remortgaging a property involves getting a new mortgage to access the equity in your property.
• 💰 The primary reason for refinancing is to access money, which can be used for any purpose, contrary to a common misconception that it's only for buying another property.
• 📈 Refinancing comes with a cost, typically an interest rate, which needs to be factored into your decision.
• 💵 The money accessed through refinancing is tax-free because it's debt, not income from selling the property.
• 🏦 Loan to value (LTV) ratio is crucial in determining how much money you can access through refinancing, with typical residential properties having a 75% LTV.
• 💲 Rental coverage, usually 125%, is a requirement for most residential mortgages, ensuring the rent is 25% higher than the mortgage payment.
• 🏢 If you own a property outright, refinancing allows you to take out a mortgage up to 75% of its value, with no debt previously.
• 🔍 The 'Redemption figure' is the amount you owe on your current mortgage, which is important to know when considering refinancing.
• ⏱️ The remortgaging process typically takes between 8 to 12 weeks, involving contacting your lender, possibly using a mortgage broker, selecting a solicitor, and completing the legal and financial checks.
• 🌟 Refinancing should be done with a clear purpose in mind, such as investing in another property, rather than just for the sake of having extra cash.

Q & A

What is the primary reason people refinance or remortgage their properties?

The primary reason people refinance or remortgage their properties is to access the money stored in the asset for various purposes, not limited to buying another property.

Is it true that you can only refinance to buy another property?

No, it is not true. You can refinance for various reasons and spend the money on whatever you want.

What is the cost associated with accessing money through refinancing?

The cost associated with refinancing is the interest on the new debt. For example, if the interest rate is 5% on a £50,000 loan, the annual cost would be £2,500, or £216 per month.

Why is the money obtained through refinancing considered tax-free?

The money is considered tax-free because it is taken as debt rather than selling the property. If you were to sell the property, you might incur capital gains tax, but with refinancing, you don't pay any tax on the accessed equity.

What is the concept of 'loan to value' in the context of property financing?

Loan to value (LTV) is a ratio that financial institutions use to determine how much money they are willing to lend against a property. For residential properties, a typical LTV might be 75%, meaning the lender will lend up to 75% of the property's value.

What is 'rental coverage' and why is it important for property financing?

Rental coverage is a measure that ensures the rent collected from a property is sufficient to cover the mortgage payments. It is typically 125%, meaning the rent should be 25% higher than the mortgage payment to ensure affordability.

How does the process of remortgaging work if you already have a mortgage on the property?

If you already have a mortgage, you need to determine the Redemption figure, which is the amount you owe to the bank. When you remortgage, the new mortgage will first pay off the old one, and the difference, if any, will go into your pocket.

What is the typical time frame for the remortgaging process?

Lenders typically quote a time frame of four to six weeks, but in practice, it often takes between 8 to 12 weeks to complete the remortgaging process.

Why is it important to have a clear purpose for the money obtained through remortgaging?

It is important to have a clear purpose for the money obtained through remortgaging to ensure that it is used effectively and not just sitting idle in a bank account, where it could be eroded by inflation.

What services does Aspire Property Group offer to help with property investment?

Aspire Property Group offers a hands-free service to help people build property portfolios and get their money working hard for them, focusing on providing strategy and investment advice.