Equity release to build investment

THE QUESTION

I want to release some equity from properties I currently have to purchase some more.  Who would be the best person to give me advice?

I'm also trying to find out how easy a property is to remortgage once it's been renovated.  Is there a specific period of time you have to wait before you can remortgage?

THE ANSWER

My first tip is to pick an adviser who is an investor themselves, they will understand your thinking in terms of recycling your cash; some mainstream advisers know very little about investing in property.  If you find yourself teaching your broker, you have the wrong broker.

On your second point, almost all BTL lenders restrict applications to remortgage a property that you own until you have owned it for six months. It is often referred to as the 'six month rule', but is optional as to whether lenders choose to invoke it or not.

The very few BTL lenders who choose not to invoke it will remortgage your property within 6 months of purchase, BUT only at the purchase price you paid.  They may also take into account the amount you spent on a refurb, but they will not value it at the market value.

There are specialist and commercial lenders that do not invoke the restriction, but they have higher rates than BTL lenders.  Also they tend not to lend to an investor with less than 12 months provable landlord experience,

Whether you wait six months or not, it should be very easy to get a mortgage lender to give you a mortgage once it has been renovated.  But a more important question is ‘can I get a mortgage lender’s values to ignore the purchase price I paid a few months earlier and value the property based in the uplift in value I have created with my renovation, allowing me to recycle as much cash out of the property to put into my next purchase?’

Whichever lender you choose will have an inbuilt aversion to allowing you to take your deposit back out because they view that as a risk to their security and, if you have none of your own cash in the property, you will not maintain their investment in your property.  Rightly or wrongly that is how they think.

Your mortgage lender’s surveyor will be focused on valuing your property at the purchase price you paid, unless they can see compelling reasons not to.  You may have comparable values, but these are largely discarded.

Many investors end up trapping more cash in their refurbs that they should because they are disappointed that their property has been down-valued closer to the purchase price they have paid. So just refurbing the property to a good standard does not mean you can overcome a valuers bias towards valuing it at the purchase price paid.

I have been speaking at property meetings all over the UK since 2011 on the subject of recycling your cash, running workshops teaching the same since 2013, brokering mortgages for even longer and will be releasing the book of what I teach entitled 'Recycle Your Cash'.  So I know something about how to resolve the issue of getting your cash out of a property.

One other point for when you purchase properties, if you intend to refinance them within a few months.  Mortgage lenders will not knowingly give you a mortgage on that basis; meaning you have to conceal your true intention when applying and this won’t do your lending record any good at all.  When you redeem every mortgage you take out; it is clearly detailed on your credit file, so lenders quickly spot serial early redeemers – and you’ll find it difficult, if not impossible, to get mortgages in the future.

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