How to Remortgage to Buy Another Property

We’ll explain how remortgaging to buy another house is possible, what types of property are acceptable and why using the services of a specialist broker will help boost your chances of success.

Can you remortgage to buy another property?

Yes, it’s possible to remortgage your house to buy another property. It’s a common practice to remortgage a home you already own to raise cash for financing the purchase of another property. This can be done as long as you qualify for a remortgage and the combination of the equity released from your current home, plus any additional cash you want to contribute, is sufficient to secure financing for the second property.

In some cases, the remortgage of the property you already own will release enough equity to buy the new property outright, eliminating the need for a mortgage on the new property.

However, you will need to pass an affordability assessment to demonstrate that you can manage the repayments on your refinanced mortgage, in addition to the debt secured against the new property. This is important because remortgaging to buy another house might result in higher monthly payments as well as remortgaging fees.

Assuming eligibility isn’t an issue, there are many different scenarios where you can remortgage to buy a second property, such as…

• Let to buy
• To invest in buy to let
• Buy a holiday let
• Buy a holiday home / second home
• Remortgage to invest in commercial property

Did you know… You could access 30% more of the mortgage market with a broker on your side.

How to remortgage to buy a second property

1. Find A Specialist Mortgage Advisor: An advisor with experience in this area as this will boost your chances of getting approved at the best terms available.
2. Use Our Free Mortgage Advisor Matching Service: Consider using our free service to make an enquiry online and speak to a specialist.
3. Get Expert Advice: Your situation is unique and its important to make an informed decision. Your affordability assessment, what you plan to use the second property for, and the equity you have in your current home will all be key factors in determining the best deal available to you.
4. Find Out How Much You Could Borrow: An advisor can help you calculate your current loan-to-value (LTV) and the amount you could potentially borrow for a second property.
5. Check Your Credit Reports: You’ll need to download your credit reports and check that everything is in order and there is no outdated information that could affect your application.
6. Gather Required Documents: You’ll need to Gather all the necessary paperwork and documentary evidence required specifically for buying a second property.
7. Find The Right Lender: Find the right lender and the best deal for you.
8. Submit Your Application: An advisor can guide you through the entire process stress-free.

What you should consider

Before consulting with a broker, anyone looking to remortgage a property to buy another one should take the following into account:

• The property type and what you plan to use it for
• Your personal circumstances
  • Affordability
  • Credit history
• How much equity you have in your current property

Property types

The type of property you’re planning to buy will be the focal point of the negotiations with the lender and is usually a deciding factor when they’re working out which products you qualify for.

There are many different types of property you could potentially buy with the funds you raise, and the main ones include…

• Let to buy properties
  This is where you rent out your current home to tenants in order to buy another property to live in.
• Buy to lets
  Buying a property as an investment to rent to tenants while remaining in your current home.
• Holiday lets
  Buying a property to rent to people on a short-term basis for short breaks, holidays or AirBnB.
• Holiday homes and second homes
  Using the money raised to buy a second property that you intend to use in addition to your current home.
• Commercial property
  Raising money to buy a property that will be used by a business, such as a shop or an office. If you currently own a commercial property, it will be possible to refinance this in order to buy another property.

In addition to the category your property falls into, your mortgage lender might also be interested in its build type. Most lenders prefer properties made from bricks and mortar as anything else would normally be considered ‘non-standard’ construction.

However, there are mortgage providers who specialise in unusual buildings and offer bespoke deals on them.

Personal circumstances

Your personal circumstances, including your employment situation, income and credit profile will have an impact on the remortgage deals you qualify for as well as the mortgage products available to you when you’re buying your new property.

Employment type

While it’s true that some mortgage lenders prefer customers who are in full-time employment, there are mortgage providers who specialise in self-employed customers and bespoke contractor agreements.

If you’re a self-employed professional looking to remortgage your home to buy another property, you’ll want to find a lender who specialises in customers who trade exactly the same way you do, and the best way to track one down is through a mortgage broker who knows the market inside out.

The main difference between a self-employed borrower and someone in full-time employment from a mortgage lender’s perspective is the way their income is assessed and how they will need to evidence it. You can read more about this in our guide to self-employed mortgages.

Income and affordability

The amount you earn will determine how much you can borrow when remortgageing or taking out a new mortgage on your second property. Your new mortgage debts will likely be larger than your existing one, so you will need to show your lender that you can afford the repayments on two loans.

Most mortgage providers cap their lending at 4.5 times your income, while others will stretch to 5 times and a minority 6 times, under the right circumstances. Use our affordability calculator below to see how this could work out for you, based on your own annual income.

If you aren’t earning enough to qualify for the mortgage amount you need, there are lenders who specialise in low-income customers. These mortgage providers may allow you to declare supplemental sources, such as benefits and assets, in addition to your annual salary to beef up your borrowing potential.

They are also known to be more flexible and judge applications on their overall strength, rather than just the numbers on the borrower’s wage slip.

Affordability on buy to let and let to buy

If you are remortgaging to buy a second property that you intend to rent out to tenants, or you intend to let your current property with a let to buy mortgage, affordability is based on the rental income the property can achieve, amongst other factors

On a buy to let mortgage, the rental income needs to cover a certain percentage of the mortgage payments. Every mortgage lender has their own rules on what percentage needs to be, with around 125-145% being standard.

Bad credit, loans and credit cards

There are specialist mortgage lenders who have experience helping people with bad credit.

These lenders are usually happy to take the age, severity and reason for your bad credit into account and offer tailored deals based on these factors, and the best way to find them is through a mortgage broker who knows the market.

Having outstanding loans and credit card debt will only be considered bad credit if you’ve missed payments on them, but owing a significant amount in either one might affect your borrowing potential, especially if your lender is unsure whether you can keep on top of your debt repayments in addition to your mortgage

If you think this may affect your chances of approval take a look at our in-depth article about how to secure a remortgage with bad credit.

How much equity you might need

This will depend on your mortgage lender’s remortgage requirements and how much you need to borrow (assuming you aren’t buying outright) to buy your second property. The level of equity you have is equal to the valuation of your property minus the balance of your existing mortgage, and refinancing is one way of accessing this.

Try our calculator below to find out how much equity you could release for your property purchase and what your new repayments on your existing mortgage will look like.

One factor that determines how much a mortgage provider will be able to lend you is your loan to value (LTV) ratio. This is basically the balance of the mortgage that is secured on your home, expressed as a percentage of the value of the property.

If you’re remortgaging to buy another property, there are currently lenders that will be able to lend up to 90% loan to value, depending on your creditworthiness.
Lenders are generally more comfortable with lower LTV loans and so you will have fewer options, and can expect to pay a higher rate, if you want a mortgage with a higher LTV. The maximum LTV you can borrow also depends on your situation, such as your age and credit history, and the purpose of the loan.

For example, the maximum LTV on a standard residential mortgage is 90% (unless you’re applying under exceptional circumstances or through a scheme like Help to Buy) , whereas the maximum LTV for a let to buy or buy to let mortgage is 85% and holiday let mortgages are often only available up to 75-80% LTV.

Using other income sources for the application

You might want to use additional sources of income to show that you can afford the new loan. Some lenders are able to consider 100% of additional sources of revenue, such as regular bonus, overtime, second jobs or investment earnings.

However, other lenders may cap the level of additional income they accept at 75% or even 50%. Similarly, some lenders can consider any benefits you receive, such as child tax credits, working tax credits and child benefits to contribute towards the affordability calculation, while others will not.

This is an area where criteria can vary from lender to lender so it’s best to speak to an advisor to get a better idea of what you should do.

Can you remortgage to buy another property with cash?

Yes. If you are able to raise enough money from remortgaging your home to pay cash for a second property, then this is certainly possible. In fact, you might find that maximising borrowing on your current mortgage is cheaper than a buy to let or second home mortgage.

If you cannot raise enough to buy the second property, you may need to get another mortgage. The type of mortgage you take on the second property depends on how you intend to use it. If you are planning to rent the property to tenants, then you should look into buy to let mortgages, but there are also specialist products available if you intend to use the property as a second home or holiday let.

Remortgaging if you are moving house

Moving to a new house without selling your existing property is certainly possible. There are lenders that offer let to buy mortgages, which enable borrowers to let their existing property to tenants and raise the funds to buy, or put down a deposit on, a new home. If you have a good rate on your current mortgage, you could also look at porting your mortgage to the new property.

Speak to a remortgage expert to discuss buying another property

Sit back and let our free broker-matching service do all the hard work in finding the advisor with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Get in touch or give us a call on 0808 189 2301.