How capital raising works
Lenders call this capital raising: remortgaging a property for more than the current balance and taking the difference in cash. Most buy to let lenders allow it up to 75% loan to value, a few to 80% at a higher rate, and most accept onward property purchase as the purpose without further evidence. The released funds typically become the deposit on the next property, so one property's growth funds the next purchase.
A full worked example
Take a buy to let now worth £220,000 with £120,000 outstanding and rent of £950 a month.
| Step | Figure |
|---|---|
| Property value | £220,000 |
| New loan at 75% LTV | £165,000 |
| Less current mortgage | £120,000 |
| Equity released before costs | £45,000 |
The £45,000 is before costs. A product fee of, say, £1,995, valuation and legal costs and any early repayment charge on the old loan all come out of it or get added to the loan. If roughly £41,000 is left after costs, a 25% deposit on a £150,000 purchase takes £37,500 of it, leaving £3,500 towards stamp duty and fees on the next property.
The stress test is the real cap
The 75% figure only holds if the rent supports it. On a 5 year fix, lenders typically stress at the pay rate with a 125% interest coverage ratio for limited companies and basic rate taxpayers. At a pay rate of 4.99%, interest on £165,000 is £8,233.50 a year, or about £686 a month. The 125% test requires rent of at least £857.66 a month. Rent of £950 clears that, so the full £165,000 works. Run the same check backwards and £950 a month supports a maximum loan of about £182,700 at that rate, so this property has headroom. A higher rate taxpayer in a personal name at 145% would need rent of £995 a month to support £165,000, so the same case would be capped a little below 75%. Our buy to let affordability calculator does this arithmetic for any rent and rate.
Timing and mechanics
Most landlords time the capital raise for the end of the existing fixed rate, since remortgaging mid fix usually triggers an early repayment charge of 1% to 5% of the loan. The application itself runs like any remortgage, with a valuation, the stress test and legal work; the step by step is covered in our guide to how a buy to let remortgage works. Where the current deal has years left to run, a further advance from the existing lender or a second charge loan can raise funds without disturbing the first mortgage, though second charge rates are typically higher.
What lenders look at on the next purchase
The new purchase is underwritten on its own rent, but the lender also looks across the portfolio. Once a landlord holds four or more mortgaged buy to lets, PRA portfolio rules apply and lenders ask for a full portfolio schedule, a business plan and cash flow figures, and some stress the whole portfolio, not just the new loan. The detail is in our guide to what changes at four or more mortgaged properties. A capital raise that leaves the background portfolio highly geared can fail the portfolio test even where the individual property passes.
What decides marginal cases
Cases near the cap usually turn on three things: whether the lender stresses the 5 year fix at pay rate or adds a margin, whether surplus personal income can top slice a rental shortfall, and the valuer's rent figure, since lenders use the valuer's market rent where it is lower than the passing rent. A £50 a month difference of opinion on rent moves the maximum loan by roughly £9,600 at the rates above, which on a tight case is the difference between raising enough for the next deposit and falling short.
Related questions
How much equity can I release from a buy to let?
Typically up to 75% of the property value, less the current mortgage balance, provided the rent supports the larger loan under the lender's stress test. A few lenders go to 80% at a higher rate. The rental calculation, not the LTV limit, is usually what caps the figure.
Do lenders accept buying another property as the reason?
Yes, onward investment is one of the most common purposes and mainstream buy to let lenders accept it, usually with no evidence of the specific purchase required. Purposes such as gambling or tax bills are treated less favourably by some lenders.
Is the released money taxed?
Borrowed money is not income, so the release itself does not create a tax charge. Interest relief rules differ between personal and limited company ownership, and tax treatment depends on individual circumstances, so specialist tax advice is worth taking before restructuring.
Can I release equity mid way through a fixed rate?
Remortgaging mid fix usually triggers an early repayment charge, often 1% to 5% of the balance. Alternatives are a further advance from the current lender or a second charge mortgage, which leave the existing deal in place, typically at a higher rate on the new borrowing.
What if the rent will not support the bigger loan?
Options include a 5 year fix stressed at the pay rate, a lender that top slices with surplus personal income, or releasing less than the full 75%. Where several properties hold equity, spreading smaller raises across them can pass where one large raise fails.
Talk it through with us
Every case is different. Call us, message us on WhatsApp, or send us the basics and one of our team will come back to you about capital raising on buy to let, usually the same working day.