A capital raising remortgage is when you switch to a new mortgage deal and borrow more than you currently owe. The extra money is released as cash, and you can use it for home improvements, to pay off debts, or other large costs. This guide explains how it works, what lenders look at, and the risks to consider.

How a capital raising remortgage works

Understanding equity in your home

Equity is the part of your home you own outright. It’s the difference between what your home is worth and what you owe on your mortgage.

If your home is worth £300,000 and your mortgage balance is £150,000, you have £150,000 of equity. A capital raising remortgage lets you borrow against some of that equity and take it as cash. Read our guide on releasing equity from your home for more information.

Borrowing more than your current mortgage

When you remortgage to raise capital, you take out a new, larger mortgage. The new loan pays off the old one. The difference is paid to you.

For example, if you owe £150,000 and remortgage for £180,000, you receive £30,000 in cash. Your new mortgage is £180,000, and your monthly payments are based on that larger amount.

The rate you pay depends on the new deal and the lender. Borrowing more usually means a higher loan-to-value (LTV) ratio. This can affect the rates available to you.

Example of a capital raising remortgage

Sarah owns a home worth £280,000. She owes £140,000 on her current mortgage. She wants £25,000 for a kitchen extension.

She remortgages to £165,000. Her new LTV is 59% (£165,000 divided by £280,000). Her lender is happy to lend at this level. She gets £25,000 in cash, and her monthly payments increase to reflect the larger loan.

To work out your own LTV, read our guide on how to calculate your LTV ratio.

What can you use a capital raising remortgage for?

Most lenders will ask what you plan to do with the money. Some uses are seen as more straightforward than others.

Home improvements and renovations

This is the most common use. Lenders are generally comfortable with home improvements because the money stays in the property. An extension or renovation can also increase the home’s value, which protects the lender’s security.

Debt consolidation

Some borrowers use capital raising to pay off credit cards, loans, or other debts. Mortgage rates are usually lower than unsecured borrowing rates. This can reduce monthly outgoings.

But this comes with a warning. You’re turning short-term debt into long-term debt secured on your home. If you spread the debt over 20 or 25 years, you could pay more overall even at a lower rate. Read our guide on debt consolidation remortgages before going down this route.

Large purchases or financial commitments

Some people use capital raising for school fees, a wedding, a car, or to help family members. Lenders assess each use on its merits. Some won’t lend for certain purposes. Be ready to explain what the money is for.

How much can you borrow when raising capital?

Loan-to-value (LTV) limits explained

Lenders set a maximum LTV. Most will lend up to 80% or 85% of the property’s value. Some will go to 90%. The higher your LTV, the fewer products available, and the higher the rate tends to be.

If your home is worth £300,000 and the lender’s maximum LTV is 80%, the most you can borrow is £240,000. If you already owe £150,000, that leaves £90,000 you could potentially raise. In practice, lenders also check what you can afford to repay.

How affordability affects borrowing

LTV is only part of the picture. Lenders also run affordability checks. They look at your income, your outgoings, and how the new, higher monthly payment fits into your budget.

If your income has dropped since you last applied, or your other debts have grown, you may be able to borrow less than your equity suggests. Lenders must be satisfied you can keep up payments if rates rise.

What are the risks of a capital raising remortgage?

Increasing your overall debt

You’re borrowing more. Even if the rate is lower than other forms of credit, you’re adding to the total you owe secured on your home. Think carefully about whether the cost is worth it.

Higher monthly repayments

A larger mortgage means larger monthly payments. This is true even if you get a lower rate than before. Make sure the new payments are affordable now, and if your circumstances change.

Risk to your home if repayments are missed

Your mortgage is secured on your home. If you stop making payments, the lender can repossess it. This risk doesn’t change because you raised capital. It may increase because the loan is now larger.

For more on what happens if payments are missed, read our guide on missed mortgage payments.

Is a capital raising remortgage right for you?

It depends on your situation. Capital raising can make sense when:

  • You have enough equity to borrow against without pushing your LTV too high
  • The money will be used for something that adds value or clears higher-rate debt
  • You can comfortably afford the higher monthly payments
  • Your current deal is ending, and you would remortgage anyway

It might be the right choice if your equity is limited, your income is stretched, or the cost of the extra borrowing outweighs the benefit.

When alternative options may be better

Second charge mortgages

A second charge mortgage lets you borrow against your equity without changing your existing mortgage. This can be useful if you’re in a fixed-rate deal with high early repayment charges.

You keep your current mortgage and take out a separate loan secured on the same property. The original lender stays in first position. The second charge lender sits behind them.

Other borrowing options

For smaller amounts, a personal loan may work out cheaper when you factor in all the costs. Unsecured lending doesn’t put your home at risk.

If you’re older, equity release products, such as a lifetime mortgage, are a separate option. These work very differently from a capital raising remortgage. These aren’t suitable for everyone and should be considered with specialist advice.

FAQs

Is capital raising the same as equity release?

No. Capital raising is a standard remortgage where you borrow more than you currently owe. Equity release is a separate type of product aimed at older homeowners, typically over 55. With equity release, you don’t usually make monthly payments. The loan is repaid when you pass away or move into care. The two shouldn’t be confused.

Do all lenders allow capital raising?

Most do, but not all. Some lenders restrict the amount you can raise. Others have rules about what the money can be used for. A broker can help you find a lender who’s comfortable with your specific purpose and situation.

Can you remortgage to raise capital with bad credit?

Yes, in some cases. High street lenders may decline if your credit record is poor. Specialist lenders look at each case in more detail. They consider the type of credit issue, how recent it was, and how much equity you have. The more equity you have, the lower the LTV, and the more options available.

Final thoughts

A capital raising remortgage can be a useful way to access money tied up in your home. The rate is often lower than other forms of borrowing. But you’re increasing secured debt, and your monthly payments will rise.

Getting professional advice before you act is important. Pepper Money works with specialist brokers who can help you find the right deal for your situation. You can find a broker through us today.

This article is for general information only. It is not financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage. Always speak to a qualified adviser before making any decisions.