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 own to raise cash to finance 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, remortgaging 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 and remortgaging fees.

Assuming eligibility isn’t an issue, there are many 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 will boost your chances of getting approved at the best terms available.
2. Use Our Mortgage Advisor Matching Service: Consider using our service to make an enquiry online and speak to a specialist.
3. Get Expert Advice: Your situation is unique, and making an informed decision is important. 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.
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 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Your Credit Reports: You’ll need to download your credit reports and check that everything is in order and that no outdated information could affect your application.
6. Gather Required Documents: You’ll need to Gather all the necessary paperwork and documentary evidence specifically for buying a second property.
7. Find The Right Lender: Find the right lender and the best deal.
8. Submit Your Application: An advisor can stress-free guide you through the entire process.

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 determine which products you qualify for.

You could potentially buy many different types of property with the funds you raise, including…

• Let to buy properties.
  This is where you rent out your current home to tenants 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 short-term for short breaks, holidays or AirBnB.
• Holiday homes and second homes
  Use the money raised to buy a second property you intend to use in addition to your current home.
• Commercial property
  Raising money to buy a property that a business, such as a shop or an office, will use. If you currently own a commercial property, it will be possible to refinance this 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, some mortgage providers specialise in unusual buildings and offer bespoke deals on them.

Personal circumstances

Your personal circumstances, including your employment situation, income, and credit profile, will impact the remortgage deals you qualify for and the mortgage products available to you when you buy 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.

Suppose you’re a self-employed professional looking to remortgage your home to buy another property. In that case, you’ll want to find a lender who specialises in customers who trade 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 how their income is assessed and how they will need to prove it. You can read more about this in our guide to self-employed mortgages.

Income and affordability

Your earnings 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 ones, so you must 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 annual income.

If you aren’t earning enough to qualify for the mortgage amount you need, some lenders specialise in low-income customers. These mortgage providers may allow you to declare supplemental sources, such as benefits and assets, and your annual salary to boost 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

Suppose you are remortgaging to buy a second property that you intend to rent out to tenants or let your current property with a let-to-buy mortgage. In that case, 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 its own rules on this percentage, which is around 125-145% 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. 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, read our in-depth article about securing 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. Your equity 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 secured on your home, expressed as a percentage of the property’s value.

If you’re remortgaging to buy another property, lenders currently offer up to 90% loan to value, depending on your creditworthiness.
Lenders are generally more comfortable with lower LTV loans, 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, 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 can consider 100% of additional sources of revenue, such as regular bonuses, overtime, second jobs or investment earnings.

However, other lenders may cap the 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 can raise enough money from remortgaging your home to pay cash for a second property, then this is certainly possible. You might find that maximising borrowing on your current mortgage is cheaper than a buy-to-let or second-home mortgage.

You may need another mortgage if you cannot raise enough to buy the second property. The type of mortgage you take on the second property depends on how you intend to use it. If you plan to rent the property to tenants, you should look into buy-to-let mortgages. Still, specialist products are 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. Lenders 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 broker-matching service do all the hard work of finding the advisor with the right expertise for your circumstances. There’s absolutely no obligation or marks on your credit rating.

Get in touch or give us a call on 0330 818 7026.