Remortgage Property to Buy Another
If you’re keen on buying another home, remortgaging your current property is one of the best ways to raise money to fund your dream therefore in the following article, we’ll consider some options if you think of following this path.
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Is it Possible to Remortgage a Property to Buy Another One?
Suppose you qualify for a remortgage according to the criteria laid out by one or more mortgage lenders. In that case, remortgaging your existing property to purchase a second property is a possible and viable option. You would need to be able to cover the purchase price of the latest property through the remortgaged amount or include additional equity to do so.
Your mortgage lender would need to be satisfied that you can cover the repayment of your refinanced mortgage and the new loan relating to the new property. As long as you’re eligible, there are several options available that enable you to remortgage for an additional property, including the following:-
- commercial property mortgage
- holiday let mortgage
- holiday and second home mortgage
- let-to-buy mortgage
- buy-to-let mortgage
We’ll fill you in more on every scenario as we continue and provide some tips on how you can make the most of your available options to suit your individual situation and requirements.
What Factors Should Be Considered Before Remortgaging to Buy a Second Property
There are several factors to consider before you rush to remortgage to buy another property. We’ve mentioned the first factor above but, along with the others, will examine it in more depth now.
Type of property
The primary concern of most lenders is your ability to repay any loans accepted. Still, they base their assessments on numerous factors to determine the risk connected to every potential mortgage scenario and individual application. One of these factors is the property type and the deal around it. Let’s examine these in more detail.
Commercial property mortgage
You can refinance commercial properties to buy other properties similar in nature. In other words, you can remortgage to buy a second property like an office or retail-type store with a business or commercial interest. Business loans are also available for this reason, but you will save a lot of money if you can remortgage.
Holiday let mortgage
A holiday let is a mortgage aimed at borrowers wanting to buy a property they will give to tourists on a short-term basis and run as a business. A holiday let mortgage is different from a holiday and second home mortgage (see below) as that is a mortgage designed for a second home that only you will have use of.
Second and Holiday home mortgage
With a holiday and second home mortgage, the homeowner can buy a second property or holiday home for their own use, either in the UK or abroad. Along with this type of mortgage, you can also get a residential mortgage to buy a second and holiday home in the UK.
The criteria and processes for a standard residential mortgage hardly differ from remortgaging your property for a second or holiday home.
Let-to-buy mortgage
A let-to-buy mortgage enables you to buy a second property and let out your current home as an investment property for a source of income. If you’re not eager to sell your existing property, this is a good alternative, but it’s sometimes not easy to negotiate with a lender.
Buy-to-let mortgage
Buy-to-let mortgages assist you in buying a property you want to rent out for profit. The amount you’ll be able to borrow will depend on any rental amount you anticipate earning from tenants as monthly income. However, some lenders might consider other income sources in certain circumstances.
Build type can make a difference
Lenders will likely be interested in the build type of the property. Most mortgage providers prefer approving mortgages for properties built using brick and mortar and consider almost anything else a non-standard construction.
Non-standard construction types often require mortgage applications through specialist lenders who can offer tailored deals on many different properties.
Circumstances
Successful mortgage applications will depend on your personal circumstances, of which several counts. Your employment position, income and credit status all impact the remortgage application success and for which mortgage products you’ll qualify. We’ll look at how these apply and how they may affect your chances of remortgaging.
Type of employment
Most lenders tend to favour applications where borrowers hold a form of full-time employment. Still, some specialist lenders are happy to supply products to self-employed people and those with full-time contractor status.
Self-employed founders and entrepreneurs are less frowned upon in current society. A mortgage advisor will help you find a lender comfortable assisting you if you are in this professional position.
Perhaps the same lender with which you currently hold your existing mortgage will be glad to assist as they’re already familiar with your circumstances. Don’t let this be your only option, though. With the proper assistance, you will find there are numerous options available to you.
The self-employed and the permanently employed both have good remortgaging chances, but a lender will likely assess their income and affordability in different ways and require differing documentary proof.
Affordability and income
Most mortgage providers will place a lending cap that amounts to 4.5 times your income on remortgage amounts, although certain circumstances could allow for larger capping. If you don’t earn enough to remortgage for the amount you require, you can visit a lender specialising in low-income customers.
If you need to find a low-income lender, a mortgage broker will help point you in the right direction. These mortgage providers could accept other income sources, like assets and annual salary, to improve your affordability. They will generally judge an application more broadly rather than only considering an applicant’s salary.
Your income ultimately determines how much you can borrow when remortgaging, as it would for a new loan on a second property. It also depends on how much equity you have to apply to the remortgage, which will probably be more significant than your current mortgage, so you will have to satisfy your lender regarding your affordability to cover both mortgage repayments.
Loans, credit facilities and credit score
Outstanding loans and credit card debt can be held against you in a remortgage application if you’ve been missing prescribed payments on them, and having large outstanding amounts for either could limit your potential to loan the amount you require. Your lender needs assurance that you can sustain all of your outstanding debt along with your mortgage payments.
High street lenders and some others may decline your remortgage application based on bad credit alone. However, some lenders regularly help borrowers with credit problems remortgage to buy another property.
These lenders will take factors like the severity, reasons and age of the bad credit into account and offer customised proposals based on the same. Once again, bringing these issues up with an experienced mortgage advisor will help you navigate the remortgage process in a suitable and solvable manner.
Let-to-buy or buy-to-let
Lenders base affordability on a remortgage to buy another property as a rental property to tenants with a let-to-buy mortgage on the rental income you’re likely to receive and other related factors.
When you remortgage on a buy-to-let mortgage, your rental income will have to cover approximately 120% to 150% of the monthly repayments, depending on the specific lender concerned.
How Does Remortgaging Your Property to Buy Another Work?
If you’ve had your own home for a lengthy period, it’ll probably be worth more than when you bought it. If this is the case, you likely already have enough equity. You can then remortgage your existing home with a larger, brand-new mortgage which would release equity for you to use as cash.
This cash is yours to save or spend as you see fit, but you could use the available cash to finance another property which you could do in the following ways:-
There are three main ways of doing this:
Take out a second-charge mortgage
A second-charge mortgage means taking out an additional mortgage on your existing home and not touching your current mortgage, leaving you free to use the equity released as a deposit on the second property and take out another mortgage for the balance. It means that, in effect, you’ll own three different mortgages.
Use the equity to cover a deposit
The cash you receive by remortgaging can be used as a deposit on your new property, meaning that you’ll have gained a new mortgage and will have two different ones – the large new mortgage on your existing home and another mortgage on your newly-acquired second property.
Purchase a new property in full
If you have enough equity at your disposal through remortgaging, you might be able to purchase a new property without taking out a second mortgage. Buy a new property outright.
Benefits and Disadvantages of Remortgaging a Property to Buy Another
Does it make sense when you remortgage property to buy another? One mortgage advisor will tell you it does, but another might not concur. It depends on your circumstances, the lender you deal with, and the current mortgage terms. Let’s break down some potential benefits and disadvantages when you remortgage to buy another property.
Benefits
Generate extra income: If you remortgage your property on a buy-to-let loan, you could generate substantial monthly rental income. Possibly you’re opening a second store with the aid of a commercial property mortgage, which means you’re expanding and generating additional revenue.
Investment Opportunity: Remortgaging your current property with a second mortgage means that, should property market values rise, you’ve realised an investment opportunity through owning two properties instead of one.
Relaxation and enjoyment potential: A second and holiday home mortgage could finally allow you to relax more and enjoy life with a property in a holiday location or a second home closer to work to reduce commuting. A remortgage also means you could release equity and use it for extra cash.
Disadvantages
Repayment increases: Remortgaging for releasing equity means a more substantial home mortgage, which will increase monthly repayments.
Increase in interest: Remortgaging does mean borrowing additional money. If you borrow more money, you’ll pay more interest, which is unavoidable.
Potential early repayment charges: Depending on your lender and the terms of your existing mortgage, you may have to pay an early repayment charge if you remortgage, which could be a substantial amount, and you might want to reconsider going ahead if this is the case.
FAQs
Can I use the equity from my home to buy another house in the UK?
Yes, it’s possible to release equity for purchasing a second home by releasing funds in your current one using equity release. If you buy a second home, you’ll have to live in your main home for a minimum of six months per year. Depending on the second home’s value, there’s also a stamp duty issue.
Can you remortgage to settle another mortgage?
Only if you have sufficient equity in your property can you remortgage to pay a debt. Even then, you should consider all your options before you remortgage, as if your current mortgage is at approximately 85% of the property’s value, a remortgage could be a costly exercise.
Conclusion
Taking out any mortgage is a big step and not one you want to rush into without expert research and advice that can help you make an informed decision. Remortgaging to buy another property is no different. At Loan Corp, we have expert advisors in place to assist you with your options and ensure your borrowing strategy aligns with your future goals.
Contact us at 0808 301 9509 or online, and we’ll offer you no-obligation advice that will make navigating the remortgaging process much more problem-free.