Are you wondering, “Can I remortgage to buy another property?” People remortgage for several different reasons. Some do it to acquire a lower mortgage rate when their initial agreement is ending, while others take out equity for home renovations. Some may even decide on remortgaging for debt consolidation purposes. Unlocking the equity in your current home can be a smart way to invest in another property. By remortgaging, you’ll have access to funds for a deposit on the second residence – making it possible to become an owner of two homes!
Can You Remortgage to Buy Another Property?
Yes, you can remortgage to buy another property if you already possess enough equity in your current property. This process entails leveraging the existing equity to fund the acquisition of another residence. 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 released equity will be invested into the property purchase or second property.
How Does Remortgaging Work to Buy Another Property?
If you’re asking, “How does remortgaging work to buy another property?” here’s the answer. 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.
Calculating Your Equity
To determine your equity, subtract what is still owed on your mortgage from its value – for instance if your home is worth £400,000 but you still owe £250,000 on it; your equity would equal £150,000!
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Understanding the Different Types of Mortgages Available for Second Properties
Are you looking to purchase a second property? If yes, then you have several mortgage options at your disposal.
Buy-to-Let Mortgages
If you’re looking to acquire a property to give you rental income, buy-to-let mortgages are tailored just for that. The interest rates tend to be higher and the required deposit is larger than in residential mortgages. However, the potential rental income could offset these costs.
Second Home Mortgages
If you’re looking to buy another property for personal use, such as a holiday home, then second home mortgages might be ideal for you. They normally share the same terms and conditions of residential mortgages but may include extra necessities like demonstrating that you can pay back both loans or having an increased down payment amount.
Bridging Loans
Short-term financing solutions may be suitable when purchasing another property before selling your current one. Although interest rates and fees for these loans tend to be higher compared with traditional mortgages, they should only be seen as temporary solutions.
Commercial Mortgages
If you plan to use the property for business, a commercial mortgage may be appropriate. These mortgages have different terms and requirements than residential ones and may require a larger deposit payment upfront.
How Many Mortgages Will I Need If I Remortgage to Buy Another Property?
If your remortgage doesn’t completely cover your first property’s current mortgage and fully fund your second property purchase, you’ll need two mortgages. The equity released from your first property will form the deposit for your second.
Loan-to-value (LTV) interest rates might be lower for your second mortgage loan, so aim to secure at least 20% from your first property’s equity. Furthermore, mortgage types could vary; such as residential versus buy-to-let mortgages for each property.
What Types of Properties Are Commonly Purchased Through Remortgaging?
There are several types of properties that people commonly purchase when remortgaging. These include:
- Buy-to-Let Properties: Many individuals remortgage in order to buy second properties as rental income properties. This could include anything from residential housing such as houses or flats to commercial spaces like shops or offices.
- Holiday Homes: Some people remortgage to buy holiday homes. This could include properties located near popular holiday spots or those they frequently visit.
- Remortgaging to Buy Second Homes for Family Members: When needed, many people remortgage in order to buy a second home for an immediate family member; perhaps an adult child attending university, or an elderly relative needing closer living arrangements.
Understanding the Tax Implications of Remortgaging to Buy Another Property
When you remortgage to buy another property, there are several tax implications that you need to consider.
Stamp Duty Land Tax (SDLT)
When purchasing your second property, SDLT fees tend to increase significantly depending on its value and whether it’s classified as residential or non-residential property.
Capital Gains Tax (CGT)
If you sell your second property and realize a profit, you may owe Capital Gains Tax. The rate of CGT depends on both your income and size of gain.
Potential Risks of Remortgaging to Buy Another Property
Remortgaging to buy another property can be a great investment, but it also comes with potential risks.
Negative Equity
If the value of your property declines, you could end up in negative equity – meaning that you owe more on your mortgage than its actual worth.
Impact on Your Credit Score
Applying for a remortgage will usually involve a hard credit check, which can temporarily lower your credit score.
Increased Monthly Mortgage Payments
When using equity from your home to purchase another, monthly mortgage payments could increase. Before proceeding with this remortgaging option, make sure that you can afford these increased payments before taking this step.
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How Do I Remortgage One House to Buy Another?
Ready to leverage one property to buy another? Let’s dive into the numbers! We’ll tackle home equity, income, credit status, and affordability. Here’s the lowdown:
Home Equity
To calculate your equity, subtract the total value of loans secured on your property from its current value. Equity is expressed as a percentage. Remortgaging gives you two options for borrowing: full remortgage or second charge mortgage. LTV options typically range between 80%-95%.
Example: If your property is worth £400,000 and your mortgage balance stands at £250,000, its equity would equal 37.5% – that would equal £150,000 as equity.
- A full remortgage to 90% LTV releases £360,000, paying off the original mortgage (£250,000) and leaving £110,000 for a deposit on another property.
- A second charge mortgage to 95% LTV provides £130,000 without repaying the original mortgage, potentially saving on any early repayment charge.
Be mindful that eligibility criteria, interest rates and terms may differ between lenders.
Income
Mortgage size depends on income, typically 4x-6x your income. This includes your salary and other regular income sources, such as bonuses, dividends, tax credits, maintenance payments, and child benefits. Accurate income details help secure a larger loan.
Credit Status
Poor credit history affects the chances of you getting a mortgage. But don’t worry, at YesCanDo Money we work with specialist lenders who cater to clients with bad credit. Time improves credit ratings, so stay patient.
Affordability
Lenders assess your affordability by comparing your income to your expenses. Demonstrating strong affordability is crucial when applying for a remortgage or a second mortgage.
We’re here to help you find the ideal deal and discuss affordability before making recommendations. Remortgaging doesn’t have to cost you a fortune!
“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)
Which Mortgage Lenders Allow You to Remortgage to Buy a Second Home?
Below we list some of the major UK lenders that have been known to offer remortgages for purchasing a second home:
- Nationwide Building Society
- Halifax
- Barclays
- Lloyds Bank
- Santander
- Virgin Money
- NatWest
- Royal Bank of Scotland (RBS)
Keep in mind that the eligibility criteria, interest rates, and terms may vary between lenders. It’s always a good idea to research and compare different lenders or consult with a mortgage broker to find the most suitable mortgage product for your needs.
How we helped our clients remortgage to buy another property
Costs and Fees Associated with Remortgaging
When considering remortgaging to buy another property, it’s important to factor in the various costs and fees that may be involved. Some of these include:
- Early repayment charges: Should you decide to remortgage before your current mortgage term ends, early repayment charges may apply from your lender.
- Valuation fees: When taking out a new mortgage, it’s essential to have your property valued for the lender to determine its worth and potential equity. The costs of this valuation can differ depending on the specific bank or building society.
- Legal fees: If you’re considering a remortgage, it requires legal paperwork to transfer the mortgage and register the new charge against your property. This process necessitates enlisting a solicitor or conveyancer to help you with this procedure; however, they do come at varying costs.
- Arrangement fees: Some mortgage lenders charge arrangement fees for setting up your new mortgage. These fees can either be added to your mortgage loan or paid upfront; though keeping in mind that adding them could increase the total interest payable.
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Conclusion
Remortgaging to purchase another property can be an advantageous financial strategy, but it is crucial that you understand both the process and potential risks associated with refinancing. If you are considering this route, it would be beneficial to speak to a mortgage advisor who can guide and advise on the process and assist in making the appropriate choice for your specific circumstances. No matter if it’s to refinance in order to purchase another property or release equity for another, YesCanDo Money can assist. With our guidance, remortgaging to acquire another house or even a home should be seamless – the answer to “Can I remortgage my house to buy another property?” is certainly yes!
For more information, check out our other mortgage advice guides, learn how to remortgage, learn more about buy-to-let mortgages, or get in touch with our team for personalised advice. You can also explore our mortgage calculator to get an idea of your potential mortgage payments.
FAQ
Is it a good idea to remortgage to buy another property?
Remortgaging to buy another property can be a good idea if you have sufficient equity in your current property and strong financial standing. It enables you to leverage your existing assets to expand your property portfolio, potentially increasing your wealth over time. However, you must carefully consider the additional financial responsibility, interest rates, and any associated fees. Consult a financial advisor to assess your personal circumstances and ensure you make an informed decision.
Can you have 2 mortgages at once?
Yes, you can have two mortgages at once. Many people take out a second mortgage when purchasing a second property, such as a holiday home or buy-to-let investment. Having two mortgages requires you to meet the affordability criteria for both loans, and you must maintain separate repayments. It is crucial to carefully assess your financial situation and consult with a mortgage broker or financial advisor to ensure you can manage the additional mortgage without overextending yourself financially.
How long do I have to own a property before I can remortgage?
There is no fixed rule for how long you must own a property before remortgaging, but most lenders prefer you to have owned it for at least six months. This allows them to assess the property's value and your ability to make repayments consistently. However, some lenders might consider remortgaging applications sooner if you can demonstrate a good reason, such as significant home improvements or a change in financial circumstances. It's essential to research different lenders' policies and consult with a mortgage adviser to determine the best course of action for your situation.
