Remortgage to Buy a Second Property

Can I Remortgage to Buy a Second House?

Yes. Remortgaging your current home to buy another property is a common approach for many homeowners. By refinancing your existing mortgage, you can unlock a portion of the equity you’ve gained over time. This released equity can then be used to help fund the purchase of a second property to suit your needs.

What Are Common Second Property Purchases?

Understanding your purpose for purchasing a second property is vital when considering remortgaging. Here are some of the most common reasons for buying a second property and how remortgaging can help:

1. Buy-to-let investments: If you’re looking to invest in property to generate rental income, remortgaging your current home can provide the funds needed to purchase a buy-to-let property. These properties are rented out to tenants, offering long-term returns if managed well.
2. Short-term holiday lets: You may wish to buy a property to rent out to holidaymakers on a short-term basis. Holiday lets are particularly popular in tourist hotspots and can offer a lucrative income stream during peak seasons.
3. Let-to-buy arrangements: A let-to-buy strategy involves renting out your current home and using that rental income to support the purchase of a new primary residence. This typically requires two separate mortgage products: a let-to-buy mortgage for your existing property and a residential mortgage for your new home.
4. Second home or holiday home: Whether for work commitments or regular leisure trips to a favourite destination, purchasing a second property for personal use is another common option. This property would be used alongside your current home, offering flexibility and convenience.
5. Supporting a family member: You might choose to buy a home for a family member or dependent, such as an elderly parent or a child leaving university. Bear in mind that with your name on the mortgage, you’ll hold full legal responsibility for the repayments, even if the property is not occupied by you.
6. Commercial property investment: Another option is to release equity from your current home to purchase a commercial property. This could be for your own business operations or as an investment to rent to other businesses.

How Do I Remortgage One Property to Buy Another?

As mentioned, if you’ve accumulated substantial equity in your current property by paying off a significant portion of your existing mortgage, remortgaging can be an effective way to access that equity and fund the purchase of another home.

In some cases, the equity you release may even allow you to buy your next property outright, eliminating the need for a new mortgage altogether. However, there are two main approaches.

Full Remortgage

This involves replacing your existing mortgage with a new one, often for a higher amount. The additional funds released can then be used as a deposit or to cover the purchase of your second property.

Second Charge Mortgage

Alternatively, you might choose a second charge mortgage, which allows you to take out a separate loan secured against your home while keeping your original mortgage in place. This option can be useful if you’re happy with the terms of your existing mortgage but need extra funds for your new property.

What are the Requirements for Remortgaging to Buy a Second Property?

If you’re planning to remortgage your home to purchase another property, there are specific requirements you’ll need to meet. Understanding these criteria will help you prepare and improve your chances of approval.

• Larger deposit requirements: Lenders typically expect a larger deposit when purchasing a second property, often requiring at least 20% of the property’s value. This means you’ll need to confirm that the equity you release through remortgaging is sufficient to cover this deposit.

• Borrowing limits based on income: How much you can borrow is closely tied to your earnings. Most mortgage lenders will usually cap the amount at around 4.5 times your annual income. Although, it’s worth noting that some lenders may take additional sources of income into account, such as bonuses, overtime, or investment earnings. It’s essential to review your income and expenses carefully to understand what you can afford.

• Affordability and credit checks: Just like applying for any mortgage, remortgaging to fund a second property will involve rigorous affordability assessments and credit checks. Lenders will evaluate your financial position to verify you can comfortably manage repayments on both properties.

• Improving your financial position: If you have a bad credit score or high levels of existing debt, it may be worth taking steps to improve your financial situation before applying. Paying down debt, reducing unnecessary outgoings, and ensuring your bills are paid on time can help strengthen your credit profile and make you eligible for better mortgage deals.

Considerations When Remortgaging to Buy Another Home

Remortgaging your current home to purchase a second property is a major financial decision which demands distinctive thought. Here are some important considerations to keep in mind before proceeding:

1. Affordability of repayments: Taking on an additional mortgage means your monthly repayments are likely to increase, and the commitment may extend over a longer period. It’s essential to make sure that you’re financially comfortable with these new obligations.
2. Employment and income stability: Lenders will assess your financial stability when reviewing your application. Recent changes to your employment – such as starting a new job or becoming self-employed – could affect your eligibility. Make sure you can demonstrate consistent, reliable income to minimise any potential risks in the lender’s eyes.
3. Costs involved in remortgaging: Remortgaging comes with additional costs which need to be factored into your budget. These expenses can add up quickly, so it’s crucial to include them in your affordability calculations. These can include:
4. Legal fees: Solicitor costs for arranging the new mortgage.
5. Valuation fees: Charges for valuing either your existing property or the new one.
6. Early repayment charges: Penalties for ending your current mortgage deal early.
7. Stamp duty surcharge: An extra 5% surcharge applies when buying a second residential property.

• Loan-to-value (LTV) ratio: Lenders will assess how much equity you have in your current property compared to its value. A higher LTV ratio might limit your borrowing options or lead to less favourable interest rates.
• Age and retirement plans: Your age can affect the term and availability of mortgage products. For example, if you plan to retire soon, lenders may be cautious about approving a long-term loan.

Speak to a Remortgage Expert for Advice

Navigating the complexities of remortgaging to buy a second property can be overwhelming, with so many options and factors to consider. That’s why expert guidance can make all the difference. Our user-friendly online platform allows you to compare a wide range of remortgage deals tailored to the UK market. Updated daily, it gives you access to thousands of quotes, ensuring you’re always aware of the most competitive offers available.

Once you’ve identified a deal which matches your needs, our team of experienced advisors is ready to provide personalised support. We’ll take the time to understand your financial situation and goals, offering advice that’s specifically tailored to help you make the best decision for your unique circumstances.

If you have questions or concerns at any point, don’t hesitate to reach out – our goal is to make the process as straightforward and stress-free as possible. Let us help you find the perfect remortgage solution and guarantee your decision is informed, confident, and aligned with your future plans.