Capital raising drives buy-to-let remortgaging

Landlords raising capital to fund portfolio expansion are driving the growth in buy-to-let remortgaging, Paragon Mortgages' research has revealed.

According to the Council of Mortgage Lenders, remortgaging accounted for over two thirds of the 21% increase in buy-to-let gross advances between the first and second quarters.

Paragon Mortgages' intermediary survey showed capital raising was the number one reason for landlords remortgaging during the second quarter. On average, nearly five out of ten (47%) buy-to-let remortgages handled by intermediaries surveyed were for the purpose of raising capital, whilst three out of ten (35%) were to achieve a better rate of interest. Other reasons for remortgaging included landlords' existing lenders actively encouraging remortgaging (8%) and dissatisfaction with an existing lender (7%).

Remortgaging hit its highest level since the final quarter of 2008 during the second quarter, according to the CML's figures. The £1.86 billion advanced for remortgage purposes represented 53% of the total £3.5 billion buy-to-let lending for the period.

John Heron, Paragon Mortgages' Managing Director, says: "Approximately two thirds of properties in the private rented sector have no mortgage whilst the average loan-to-value on those properties with a mortgage is 48%, so there is a huge amount of equity in the sector that landlords are looking to utilise to help fund portfolio growth.

"Council of Mortgage Lenders figures show there was a significant increase in buy-to-let remortgage cases between the first and second quarters of this year and it appears a large proportion of that is from landlords releasing equity to generate seed capital for portfolio expansion. In a market characterised by high rental demand, we could see this becoming more commonplace."

Paragon considers remortgage applications where a borrower is raising capital on residential investment property for a range of purposes including:

Landlords who wish to release capital to purchase a new residential property

Landlords who wish to release capital from lowly geared private rented properties to expand their buy-to-let portfolio

Properties within six months of original purchase where significant improvements work can be evidenced

Owner-occupiers who wish to convert their residential property into a buy-to-let property and who use the capital raised to invest in other property assets

Paragon Mortgages caters for complex buy-to-let propositions, including a wide range of property and tenant types, in addition to lending to Limited Companies. Paragon Mortgages' range starts from 4.40%.