When landlords need to release capital from a rental property, both ARO and remortgaging are options. Here's how they compare.
Landlords who need to release capital from a rental property typically have two main options: remortgaging (borrowing against the equity in the property) or an Advanced Rent Option (receiving future rent upfront). Understanding the differences between these approaches helps you choose the most appropriate solution.
Remortgaging to release equity
Remortgaging involves borrowing additional money against the equity in your property. If your property is worth £300,000 and your outstanding mortgage is £150,000, you might remortgage to £200,000, releasing £50,000 in cash.
The advantages are that you receive the full market value of your future rental income with no reduction. The disadvantages are that you take on additional debt, pay interest and fees on the borrowing, and your monthly mortgage payments increase. Your rental income must continue to service the higher debt level.
Advanced Rent Option (ARO)
ARO allows you to receive future rental income as a lump sum now. If your property would achieve £1,200 per month, an ARO for 12 months would provide approximately £14,400 (or the agreed guaranteed rent equivalent) in a single upfront payment.
The advantages are there is no new debt, no interest payments and no increase in monthly mortgage obligations. The disadvantage is that you receive slightly less than the full market rate for that period (as the management company must make their margin).
Which is better?
It depends on your specific situation. If you have significant equity and want to release a large sum, remortgaging may be the only way to access the amount you need — ARO is limited to future rental income for a defined period.
If you need a specific sum that corresponds to a period of rental income, ARO is often cleaner and cheaper than borrowing — no interest, no arrangement fees, no legal costs.
If your credit profile or current mortgage rates make remortgaging expensive, ARO becomes more attractive by comparison.
Call us on 01268 944120 to discuss your specific capital release situation and how ARO might help.