Remortgaging to Buy Another Property
If you already own a property and have done for a number of years, the chances are you’ll have built up a fair amount of equity. If you’re looking to buy another property, either as a second home or as an investment property, you could potentially release the equity to raise funds for your onward purchase.
What properties could I buy as a second purchase?
Whether you’re a new landlord or looking to expand your existing portfolio, investing in rental properties can be a lucrative way to generate passive income and build wealth over time.
Let to Buy
A Let To Buy is where you rent out your existing residential property and buy another property to live in. In this scenario, you’ll need to a Let To Buy mortgage on your current home. Unless you release enough equity to buy your new home outright, you’ll also need a residential mortgage on your new home.
You may wish to buy another property close to your work to avoid the daily commute, or buy an additional property to use as a holiday home. Both of these are potential options and reasons to remortgage. When considering this kind of property, it’s worth noting that you are likely to need a bigger deposit than you would with a first home. You should also factor in the upkeep and ongoing maintenance of the property to ensure you can manage it comfortably within your budget.
Buying a home for a family member to live in
If you’re considering purchasing a second home for a friend or family member to reside in, bear in mind that your name will be on the mortgage so legally, you have the responsibility to make the mortgage payments. If you are planning on renting to an immediate family member, you will need to get a Regulated Buy to Let which you can read more about here.
Buying a commercial property for business use
There are a few lenders who will allow you to remortgage your home to raise funds to invest in a property for a company.
It is crucial to inform your mortgage adviser which type of second property you intend to purchase to ensure they find the right product for you.
How do I remortgage my home to buy another property?
If looking to remortgage your current home in order to purchase a second property, there are various factors that the lenders will consider to ensure that they deem it affordable for you.
Equity in your current home
Having enough equity in your home to raise the required funds will be a significant factor in your remortgage application.
Equity is simply how much of your home you own. You can calculate your equity by finding out how much your home is worth and subtracting your current mortgage balance. The amount remaining is your equity.
In all cases, you will need to keep a minimum of 5% (potentially as much as 25%) of the property’s equity in your current residential and this amount depends on the lender’s terms and criteria.
For example, if you have a property worth £250,000 and a mortgage balance of £110,000, the equity you hold would be £140,000.
If you kept 10% equity in your current home, you would potentially raise £126,00 towards your second property.
A with any mortgage, the amount you earn is a primary factor in determining your affordability. Lenders want to ensure that you have a stable income to make monthly repayments. Typically, the higher your income, the more you can borrow.
Lenders will assess your monthly outgoings to determine how much disposable income you have after all your expenses. This helps them gauge if you can afford the monthly mortgage payments.
A good credit history indicates to lenders that you’re reliable when it comes to repaying debts. A poor credit history might reduce the amount you can borrow or increase the interest rate.
Age can be a factor since younger borrowers might have a longer working life ahead, whereas older borrowers may have a shorter time frame for repayment. Some lenders might have age restrictions on their mortgage products.
Lenders utilise affordability calculators to determine how much an individual can borrow. These calculators consider various factors, including the ones mentioned above, and each lender’s criteria may differ.
For individuals with irregular income streams, such as the self-employed or freelancers, proving affordability might be more challenging. However, some lenders specialize in such cases, and mortgage advisers can guide borrowers to these suitable lenders.
Using a mortgage adviser can be beneficial for individuals navigating the complexities of the remortgage market. Here at The Mortgage Masters we have expertise in understanding different lender criteria, can provide tailored advice based on individual circumstances, and help borrowers find the most suitable mortgage product.
Your home may be repossessed if you do not keep up with repayments