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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd February 2021*

Remortgaging your house to buy another property is a common way of raising money for people who are looking to invest in buy to let or to buy a second home. In this article, we will discuss some of the considerations if you are thinking about remortgaging to buy a second home.

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Can you remortgage to buy another house?

Yes. This is possible as long as you qualify for a remortgage and refinancing your property would raise the amount needed to fund the purchase of your new house. You will also need to convince your mortgage lender that you can afford to pay your refinanced mortgage in addition to the debt secured against the new property.

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 / second home

  • Remortgage to invest in commercial property

  • Remortgage of a commercial property

Read on to find out more about each type of agreement and how to secure the best deal for your needs and circumstances.

What you should consider

First and foremost, consider working with a mortgage broker as they can help you find the best deal for your remortgage as well as the purchase of your new property, offering your expert advice and bespoke guidance every step of the way. Before consulting with a broker, anyone looking to remortgage a property to buy another one should take the following into account…

Property types

The type of property you’re planning to buy post-remortgage will be the focal point of the negotiations with your 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 from a remortgage, 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
  • Buy to lets
    Raising money on your current property to buy a different property to rent to tenants
  • Holiday lets
    This is where you buy a property to rent to people on a short-term basis for short breaks or holidays
  • 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. For more information on this, take a look at our Commercial Mortgages section.

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. Read more in our guide to property types.

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. Read on to find out what mortgage lenders look for when assessing your personal circumstances.

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 remortgaging 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.

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. See our guide to low-income mortgages for more information.

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

While it’s true that some mortgage lenders (high street ones, in particular) might decline your application if you have bad credit, there are specialist bad credit mortgage lenders who help people with credit issues remortgage to buy another property every day.

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. Find out more in our guide to bad credit mortgages.

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.

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.

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

Example

If your home is currently worth £500,000 and you have a mortgage of £200,000, your current loan to value is 40% and you have £300,000 of equity in your property.

If you wanted to release this equity to buy another property, you could potentially borrow up to £450,000, which would provide you with enough capital to take your LTV to 90%.

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.

How to remortgage to buy a second property

Assuming you hold enough equity in your home, remortgaging will unlock this capital so you can use it as a deposit for your new property (or to buy it outright, if you’ve built up a hefty amount over the years). Your remortgage and your second mortgage application can be with the same lender or two different ones.

Before you get started, it’s worthwhile consulting with a mortgage broker who specialises in these arrangements. They can help you get the best deal on your remortgage as well as your new purchase mortgage, advise you every step of the way and assist you with all of the paperwork.

We offer a free broker-matching service that will pair you with the right advisor for your needs and circumstances. If you’re hoping to become a landlord, we’ll introduce you to a buy-to-let expert, and if you’ve got your eye on a holiday home, we’ll find a broker who specialises in this property type.

An initial consultation with a fully-vetted mortgage broker from our network is free with no obligation to continue, and taking part in one could save you time and money in the long run.

Using other income sources for the application

If you are remortgaging to buy a new home 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 job or investment earnings.

But 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 benefit to contribute towards the affordability calculation, while others will not.

Again, 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.

If this is something that interests you, get in touch to speak to a specialist let to buy mortgage advisor.

FAQs

Got a query about remortgaging to buy another property that we haven’t covered so far? Our FAQ section answers some of the questions we hear most often from customers who are looking to do this, so you might just find the info you’re looking for below…

Can I remortgage my property to buy another if I work part-time?

Yes. This shouldn’t be a problem as long as you can demonstrate that you can afford the new mortgage in addition to your current financial commitments.

Can I remortgage my house to buy another if I recently started a job?

Yes, there are lenders that will consider your application if you have recently started a new job. This is another area where criteria can vary greatly from lender to lender. Some will ask for a minimum of 12 months’ employment history while others are happy with 6 months, some lenders will insist on you completing any probationary period and some lenders are happy to lend from your first day in a new role.

There are even lenders that will consider a future contract within 3 months of the start date of a new job. A specialist broker will have a good understanding of the options available and the best lenders for your circumstances.

Are there age restrictions?

The minimum age for most lenders is 18. For older borrowers who are considering remortgaging to buy a second home, there are now a number of options. Lenders may stipulate a maximum age at application or a maximum age at the end of the mortgage term, but there are lenders that do not have a maximum age. The key is affordability again and, if you are looking to take a mortgage that will stretch into retirement, then you may need to demonstrate that you will be able to afford repayments based on your retirement income.

Can I remortgage to buy another house with Early Repayment Charges to pay on my current mortgage?

You can, but if you have Early Repayment Charges on your current mortgage you will need to think about whether it is worth paying those charges or waiting until there is no longer a penalty for remortgaging. There may be times when you decide that it is worth paying an Early Repayment Charge and there will be times when it is not. A conversation with the advisors that we work with will help you to understand these considerations.

Can I remortgage an investment property?

Yes, remortgaging one property to release equity that is used to help buy another property is a common method that landlords use to grow their portfolio. Some buy to let lenders will lend up to a maximum loan to value of 85% and affordability is based on the level of rental income that can be achieved by the property.

Recent changes to the regulation of buy to let mortgages means that lenders have to apply a minimum stress test when they calculate how much to lend and the level of this stress test depends on whether you are a higher rate or basic rate taxpayer.

Can I remortgage to buy property abroad?

Yes, it is possible to remortgage to buy a holiday home abroad. Lenders are usually happy for funds to be used for this purpose and criteria is generally the same as remortgaging to buy property in the UK.

If you are thinking of remortgaging to buy property abroad you may be able to raise enough money on your existing home to purchase the property in cash, but if you need to raise further funding you might need a specialist mortgage.

Am I able to remortgage inherited property?

Remortgaging an inherited property is usually not a problem as long as probate has taken place and you have become the legal owner of the property. Lenders will usually insist that you have been the owner of the property for at least 6 to 12 months, but there are some lenders that will allow a remortgage sooner than 6 months.  All beneficiaries and owners of the property will need to be on the mortgage, unless you are buying their share of the property as part of the remortgage.

Can I remortgage a property I own outright to buy another one?

Yes, this could be possible. This type of deal would usually be called an unencumbered mortgage. You can find out how to get a mortgage on a house you already own in our standalone guide.

Speak to a remortgage expert to discuss buying another property

If you’re looking to remortgage a property to buy another one and want expert advice from a broker who specialises in these arrangements, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry.

Then 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.

Updated: 23rd February 2021
OnlineMortgageAdvisor 2021 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.