Remortgage To Buy A Car
If you’re struggling to finance the purchase of a new car, you are not alone! Many people are unable to pay for a car outright and need to investigate various other financing options that will make it possible for them to buy a car.
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Is It Possible To Remortgage To Buy a Car?
It is possible to remortgage your home in order to purchase a car, but not all lenders will allow you to do so. The mortgage lenders who permit remortgaging for a vehicle purchase will treat this just as they would remortgaging for holidays, lifestyle, or non-essential purposes.
Purchasing a new vehicle is not considered to be an essential purchase and will likely be subject to various restrictions and caveats to your additional finance request. Other lenders may require their underwriting team to perform further credit and financial checks before approving the loan request.
The key to getting approved for a remortgage to purchase a car heavily depends on choosing the right lender. Finding a lender that typically approves similar requests, especially one that doesn’t implement various loan-to-value caps or other lender restrictions, will greatly aid you with getting approval.
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Why Consider A Remortgage To Buy A Car?
The two primary incentives for choosing to remortgage your house in order to purchase a new car are the low-interest rate and if your chosen vehicle is of high value or could be considered an exceptional purchase.
A mortgage, and thus a remortgage, is a secured loan and therefore has much lower interest rates than those associated with an unsecured personal loan. The latter is the more common way to purchase a vehicle, but it isn’t always the most cost-effective.
It can be difficult to secure traditional car finance for a luxury or classic car purchase. In this instance, you’ll want to investigate the possibility of remortgaging your home to purchase the chosen vehicle. This can be a good way to fund an appreciating asset.
How Much Equity Could I Release For My Car Purchase?
The amount of equity you’ll be able to release from your mortgage depends on the lender’s loan-to-value ratio bracket. The amount that you can borrow against your home can range from 65% to 85% of your home’s value. Some lenders may even offer up to 95% of the value of your home.
A lender is more likely to offer you a high LTV bracket if you are an existing customer. A clean credit report is another factor in what LTV you’ll be offered.
If your circumstances have remained the same for the duration of your current mortgage, and you have not defaulted on any payments, you may be offered a higher LTV bracket for purchasing a vehicle.
The same applies if your new mortgage isn’t going to last into your retirement. If you’re going to enter retirement during the course of the new mortgage, the lender will be less likely to make you a favourable offer.
Unfortunately, you’re like to be subject to lower LTV caps if you are self-employed as opposed to having full-time permanent employment.
To ensure that you get the best possible offer, it is recommended that you speak to a mortgage broker. They will know which lenders are best to approach when remortgaging for a car purchase and will be able to find the best deal for your specific situation.
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Other Possible Restrictions
In addition to the various LTV caps that you may encounter, there are some other restrictions that lenders can put in place if you wish to remortgage your home to purchase a new car.
For example, if you wish to buy the car with the purpose of reselling it at a profit, your lender may deny your application. They may also deny your application if you are purchasing the car for business purposes.
You will likely be subject to further credit checks as well as other underwriting assessments. You may also be required to provide evidence that you are using the released equity for a vehicle purchase.
If the property you wish to remortgage is unencumbered, the lender might have a higher LTV cap for your application.
It is important to research the lender’s criteria for applying for a remortgage to buy a car to ensure that you will be able to pass the various credit checks and meet their minimum eligibility requirements.
Can Car Finance Affect Your Mortgage Application?
Applying for a mortgage when you still have outstanding payments on your car loan can have a negative impact on how much a mortgage lender will be willing to offer you. The remaining monthly payments will be taken into consideration when your mortgage affordability is assessed.
Car finance repayments are a regular and often significant expense and thus affect the amount of money you will have available for mortgage repayments on a monthly basis. This will definitely influence the amount that mortgage lenders will consider offering you.
They will also scrutinise your credit rating history to ensure that you don’t have a history of defaulting on payments. If you have missed any car payments, they will show up on your credit check and will be seen as a red flag by the mortgage lenders.
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Reasons Not To Remortgage For Car Finance
If your mortgage with your current lender is in the fixed term or introductory rate period, you will likely be subject to high exit fees, making switching a bad financial decision. You might be able to opt for a product transfer, but it is unlikely that you will be able to move to a new lender.
Another reason why choosing to remortgage to buy a car might not be the best option for you is if you have had a change in circumstances since applying for your original mortgage. You will be subject to new credit and affordability checks when you change lenders.
If you have been retrenched or have had a negative change in income levels, you’ll likely not be approved for a remortgage, especially if it is for a non-essential purchase. You may need to apply with a specialist mortgage lender to succeed.
Consulting a mortgage broker will help you to find a provider who might be able to assist you. They will also be able to advise you on the best remortgage deals as well as investigate the product transfer deals offered by your current lender.
Lastly, it can be difficult to remortgage a property when you only have a small outstanding balance on your mortgage. You will also face difficulties if you are looking to borrow less than £25,000. If this is your situation, consult a mortgage broker or another financial adviser, as they can assist you in finding the best financing option.
Alternative Ways To Finance Car Purchases
If you need to finance a car purchase but aren’t able to remortgage your home, there are several other options available.
Various standard forms of car finance are available on the market, including personal loans, leasing, and hire purchase options.
A second-charge mortgage is another way to finance your vehicle. This is essentially a secured loan taken against the equity of your current mortgage deal. They are fairly risky but can be used to purchase a vehicle and often have an LTV of around 75%.
Another alternative is a short-term bridging loan. While these are not commonly used for car purchases, they can be used in some specific circumstances. If you need fast cash in order to purchase a specialist car at an auction, then bridging finance is something to consider.
If you are over the age of 55 years and have no plans to remortgage your home to fund your new car’s purchase, you may want to consider equity release. This option can be used for a wide range of purchases, so it is a good option if you qualify.
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FAQs
How much equity can I release from my house to buy a car?
The amount of equity you can release from your mortgage will vary from lender to lender and from situation to situation. It is dependent on the lender’s criteria, including their loan-to-value ratio.
Some lenders will only have a 65% LTV ratio, whereas others can offer as much as a 95% ratio. Things that can positively influence your LTV are if you’re an existing client with the mortgage lender, your credit score is positive, you’ve had no changes in circumstances, and you are employed full-time.
It is recommended that you consult mortgage brokers to maximise the potential LTV for your remortgage. They’ll be able to suggest which lenders to approach after checking your credit rating and doing a few other assessments.
Will my credit score be affected if I remortgage to buy a car?
A hard credit check is part of the requirements for a remortgage application. Evidence of this check will remain on your credit score. While a credit check is not necessarily a negative mark on your score, it can look bad if there are too many of them in close succession.
Consistently making monthly payments towards your car finance will positively impact your credit rating, as it is evidence of your reliability as a borrower. However, by the same token, missed payments will negatively impact both the score and your reputation as a borrower.
It is recommended that you check your credit score under your personal capacity before applying for any financing so that you can make sure that you have a decent chance at being approved for the secured loans you’re applying for. This will prevent unnecessary hard checks and give you valuable insights into areas you can improve on.
Paying your bills and debts timeously and ensuring that your debts don’t become too overbearing will all work towards maintaining a good credit score.
Final Thoughts
If you meet the necessary requirements and can afford it, it can be a good idea to remortgage to buy a car. However, there are many ways to raise the finances needed to buy a car, and it is important to explore your options before going ahead with a remortgage.
You may find that an alternative auto finance option will give you better interest rates and make it easier to purchase a new car.
Before making any decisions, consulting with a mortgage broker is highly recommended, as they will be able to advise you about the best option for your situation as well as find the best possible deal so don’t hesitate and contact us now.
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