As borrowers look to the new year, some will have ‘sorting out finances’ at the top of their to-do lists, and capital raising could form part of that.
Homeowners across much of the UK have seen substantial house price gains over the past decade – over 50% in many regions. Older borrowers in particular may be looking to tap into some of the equity they’ve built up, potentially to help younger family members onto the housing ladder through a gifted deposit.
January also sees the start of the government’s 20% VAT on private school fees, which the government estimates could increase private school fees by around 10%. Combined with a rise in university fees, also expected in 2025, these changes may give parents or grandparents even more reason to consider capital raising.
For the self-employed, there’s the annual new year tax bill to contend with, and January is also a natural time for taking stock, dealing with post-Christmas expenses, and possibly managing debts – both common reasons for capital raising.
As a number of borrowers potentially look to review their finances in January, it’s helpful for brokers to understand how they can support those looking to raise capital through remortgaging.
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Things to consider when capital raising
The reasons for capital raising can vary widely and so can the client – from a high-net-worth individual (HNWI) looking to free up cash to help family, to a borrower hoping to consolidate debt or pay a tax bill.
Each case needs to be looked at individually, as what works for one client might not suit another.
If we look at capital raising specifically to pay a tax bill, borrowers will need to provide a full explanation for why the bill is outstanding and reassurance that there are no additional tax liabilities or potential accruals. The same principle applies when consolidating debt; if there’s a clear reason for the debt and a plan for how consolidation will benefit the borrower, underwriters can consider this with a personal underwriting approach.
Some other common reasons for capital raising include home improvements or extensions – perhaps wanting to improve their property’s Energy Performance Certificate (EPC). Capital raising can also be used to help start a new business venture or expand a property portfolio, with each case evaluated individually.
Capital raising isn’t limited to those living in the UK, either. Expats who have temporarily moved overseas may wish to raise funds to support family members or to purchase property for a relative, or even for themselves, back in the UK.
Capital raising for complex borrowers
We were recently able to help a client looking to raise almost £1m to give as a deposit so their child could buy a house. The circumstances were complex, but with a flexible, personalised approach, we were able to assist.
The client wanted to remortgage their residential property, releasing £998,000 at 50% loan to value (LTV) over a seven-year term. They opted for an interest-only mortgage, with downsizing as the repayment strategy.
Adding in a further layer of complexity, the applicant was self-employed and owned two companies – one in the UK and one offshore. For the income from one company, we used salary and dividends, while for the other, we looked at net profit. One business was paid in euros and the other in sterling, with additional income declared and verified by the client’s accountant.
Working with mortgage brokerage Savills Private Finance, once the application had been submitted, we were able to move to completion in fewer than seven weeks – a fantastic result.
1.8 million mortgages up for renewal in 2025
With UK Finance estimating that around 1.8 million fixed rate mortgages are set to be up for renewal in 2025, some of these borrowers may decide it’s the right time to raise capital when they remortgage.
And with Savills predicting that over 50% of first-time buyers (FTBs) will receive support from the Bank of Mum and Dad in 2025, capital raising could play a big role in the year ahead.
Whether it’s helping younger family members buy their first home, covering educational costs, or even investing in a new business venture, each borrower’s needs are unique and require a tailored approach.
As January inspires some borrowers to re-evaluate their finances, lenders and brokers can work together to guide those looking to release equity through the capital raising process.