People remortgage for several reasons. Some do it to move onto a mortgage rate when their existing deal is coming to an end. Others remortgage to release equity for home improvements and there are those who decide to remortgage for debt consolidation purposes.
It is possible to remortgage to buy another property. This is achieved by releasing equity to fund the deposit for a second property.
This will be the focus of this guide but if you would like to remortgage, for any reason, with an established online mortgage advisor at YesCanDo Money today.
Can I remortgage to buy second property?
In theory, you should be able to remortgage to buy a second house. As mentioned above, you would need sufficient equity in your current property to fund the purchase of your second property.
You would also need to pass the mortgage lender’s affordability and eligibility checks, be that the same lender you hold your first mortgage with. The lender will need to know how much equity there will be left in the first property. The lender will want to see how much the realise equity will be invested into the property purchase or second property.
How does remortgaging work to buy another property
If you want to buy a second property, you can release equity from your current property via a remortgage. You can remortgage to buy another property by releasing equity and then put this towards the mortgage deposit for the second property.
Of course, if you decide to release equity this way, you need to ensure the numbers work and you have sufficient equity to make it work before you start house hunting for a new property. To find out how much equity is in your home, you simply need to subtract the amount you still owe on your mortgage from the current value of your home.
So, if the property value of your home was £300,000, for example, and you had £150,000 to pay back on your mortgage, your equity would be £150,000.
What purchases are common as second purchases?
These are just some of the purchases you might consider if you are eligible for a new mortgage.
A buy-to-let property
You could boost your finances with the rental income made from a buy-to-let property so this is an excellent reason to consider a remortgage. Talk to a mortgage advisor at YesCanDo Money about the mortgage deals currently available for an investment property.
A second home
If you wanted to buy a second home for yourself or another member of your family, you could do that via a remortgage. You don’t even need to buy a house in this country. If you have a favourite vacation spot, you could buy a holiday home if you find a suitable property abroad.
If your plan is to buy a holiday home with a new mortgage there will be a maximum ltv and your income will need to cover both mortgages. Its worth noting that you will also be looking at stamp duty which is an extra 3% on top of the standard stamp duty rates. The stamp duty rules apply on buy to let mortgages when purchasing a second property.
To ensure you get a good deal on a standard residential mortgage as well as buy to let mortgages, get in touch with a member of our expert team.
Learn what loan-to-value on a second mortgage is needed.
Commercial property for business use
If you need to raise money to buy a property that can be used for your business, you can do that through the equity released on your home or your existing business property.
Most mortgage providers will consider your application if you want to buy a commercial property for business.
However, most lenders will be interested in the construction build of the property you’re thinking about buying. If it isn’t made out of bricks and mortar, you may not be granted mortgage approval. This doesn’t mean every lender will turn you down. Some specialist lenders will consider properties that have been built with ‘non-standard’ construction and we can put you in touch with these if you have been turned down elsewhere.
One, two, or three mortgages?
If you have enough equity in your existing home to buy a second property outright, you will have the opportunity to own two properties but have only one mortgage.
If the released equity from the remortgage is only sufficient for the deposit for your second property, you will need to take out a second mortgage. You will then be left with an increased balance on your first mortgage plus another mortgage to make monthly payments on.
If you didn’t want to remortgage your first property, you could apply for a second charge mortgage which would be an additional loan on top of your existing mortgage. You could use this as the deposit for your second property. In this instance, you would then have three mortgages to make mortgage payments on.
Whichever option you choose, you don’t need to stick to your existing lender if you can find better remortgage deals elsewhere.
If you do decide to switch to a different lender, be aware that your existing lender may impose early repayment charges. To avoid an early repayment charge, it is often better to wait until your existing mortgage deal is coming to an end before remortgaging to a new home loan.
Speak to an expert mortgage broker at YesCanDo Money about the deals and mortgage lenders that are suited to your personal circumstances.
How do I remortgage one house to buy another?
Before you start looking at mortgage deals for your new property, the following steps are advised if you wish to remortgage one property to buy another.
Calculate your current home equity
You can calculate your home equity by subtracting the total of all the loans secured against your home from the appraised value of your property. To find out how much your house is worth, speak to an estate agent or look online at similar properties that are currently for sale.
Work out how much you need to borrow
If you have sufficient equity in your home to pay the total cost of a new property, you won’t need to borrow any further money. If you have insufficient equity in your home you may need to consider raising part of the amount you need on your existing home and getting a buy-to-let mortgage on the purchase.
Remortgaging your existing property and getting a buy to let mortgage
More often than not, however, most people do need to remortgage their first property to buy a second. This is one option for you but as we suggested, you could also take out a second charge mortgage which would be an additional loan on top of your current mortgage.
You will know how much you need to borrow after calculating your equity and checking house prices. Remember to factor in mortgage fees, stamp duty, legal fees, different property taxes, and any other additional costs when considering how much you need to borrow.
High Street mortgage lenders as well as specialist lenders will need to know the expected rental income that will be achieved once you own the property. The rental income will need to be confirmed by the mortgage valuer when he inspects the property therefore you will need a realistic rental income expectation.
Can I remortgage an inherited property?
The good news is you can remortgage an inherited property. There can be a few reasons why. These include buying out siblings’ share in an inherited house. We have experienced many times over the years and have many examples when one of the siblings wants to keep the family home and therefore needs a mortgage to buy out siblings. It’s a win-win as the sibling buying the inherited home will need a far smaller mortgage and no deposit. The sibling that is being bought out will have their money far quicker without having to pay any estate agent’s fees for selling the property.
Check your credit status
The higher your credit score the better as there are very few mortgage providers lending to people who have a bad credit rating.
If you have a bad credit rating or if your credit history is poor, most mortgage lenders will doubt your ability to make your mortgage repayments. Therefore, it is wise to improve your credit score before you make your application.
Improve your financial position
When assessing your application, the lender will carry out various checks related to your affordability. If they don’t think you are in a strong enough position to afford the monthly repayments on a remortgage deal, your application will probably be turned down. The mortgage makes their assessment via a mortgage affordability calculator which looks at your disposable income. This will be your income minus your outgoings for example credit cards and a secured loan.
As such, you should do what you can to improve your financial position before you apply for a mortgage. If possible, try to boost your approximate annual income, especially if you think your earnings might not qualify you for a mortgage. Take steps to decrease your spending too as lenders will check your expenditure when determining your affordability. You should also try to clear any debts before you make your application.
When you improve your financial position, you are more likely to meet the mortgage lender criteria. You might also increase the maximum loan value of a mortgage for a more expensive home. If you’re able to put down a larger deposit, you should also qualify for a deal with the lowest interest rates.
We have observed that it can seem overcomplicated to understand how to work out the possibility of remortgaging your existing property to enable you to purchase a second property. Our experienced mortgage advisors are experts and will explain how this can be done. – Stephen Roberts (Director)
Speak to a mortgage broker
To ensure you get the best deal on a remortgage, be that for a buy-to-let or residential mortgage, you should speak to an exclusive mortgage expert at YesCanDo Money.
This guide does not constitute financial advice so have a chat with one of our experienced mortgage advisors who will provide mortgage advice tailored to your situation and will make sure you gain access to the very best remortgage deals on the market.
A member of our specialist mortgage team will also assist you with your remortgage application to make the whole process easier for you.
YesCanDo Money’s expert fee-free mortgage advice
No matter your reason for remortgaging your own property, be it to buy a second home or a rental property, our expert team of mortgage brokers is here for you. You will save money when you use our services as not only will we help you keep the cost of remortgaging down but we offer FEE-FREE advice too.
To learn more, get in touch with us about your mortgage online by using the contact details on our website.