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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 9, 2021

There are many ways to pay for a new car, from auto finance to buying outright, but what about remortgaging to release equity from your property to foot the bill? In our guide to remortgaging to buy a car, we’ll tell you whether this is an option for you, outline the criteria you need to meet and highlight the alternatives you may wish to consider.

Can you remortgage to buy a car?

Yes, it’s possible but not all mortgage lenders will let you refinance for this purpose. The lenders who do allow it treat remortgages for car purchases exactly the same as they would if you were refinancing for other non-essential lifestyle purposes, such as booking a holiday.

Since buying a new car is considered a ‘non-essential’ purchase, some remortgage lenders will apply caveats and restrictions to your request for extra borrowing, while others will only approve it after requesting additional scrutiny from their underwriting team.

Needless to say, approaching the right mortgage lender can make a huge difference if you’re refinancing for this purpose. It can be the difference between approval and rejection or the key factor that helps you avoid strict loan-to-value (LTV) caps and lender restrictions.

Read on to find what caveats you might encounter if you’re remortgaging to buy a car.

How much equity you could release for your car purchase

The loan-to-value (LTV) ratio brackets at the lender you choose will determine how much equity you could release to fund the purchase of your new motor. Some lenders will only let you borrow 65-75% of the value of your home if you’re remortgaging for lifestyle purposes, others will stretch to 85% and it may even be possible to find one offering up to 95% LTV.

Some lenders will only offer you a high LTV remortgage for this purpose if…

  • You’re an existing customer: Some lenders have a lower LTV cap if you’re remortgaging onto a deal with them, having just left another lender.
  • You have clean credit: Or at least your credit report is in good enough shape to meet their lending requirements. Customers with certain credit issues might find it harder to qualify for a high LTV remortgage, regardless of how much equity they hold.
  • Your circumstances are unchanged since you took out your mortgage: If you’re sticking with your current lender and your circumstances have changed since you took out your original mortgage, your mortgage provider might proceed with caution. This might include things like having lower income or recent bad credit.
  • The new mortgage doesn’t run into your retirement: If you’re extending your mortgage term or remortgaging onto an agreement with a new lender, they might take your age into account. If the mortgage runs into your retirement years, this might mean that you find it more difficult to qualify for a high LTV remortgage.
  • You’re in full-time employment: Some lenders might apply a stricter LTV cap if you’re self-employed. Coventry Building Society, for example, caps the LTV at 75% for employed applicants and only 65% for self-employed borrowers.

The best way to make sure you secure the most favourable LTV ratio possible and avoid lenders restrictions is to speak to a mortgage broker. The right advisor will know exactly which lenders offer the best deals for people who want to remortgage a house to buy a car.

Restrictions you might encounter

As well as the LTV caps we’ve already discussed, there are a few roadblocks you might run into if you want to remortgage to buy a car. Some lenders place restrictions on borrowers who are releasing equity for this purpose, so you might encounter the following caveats…

  • Some lenders won’t approve your application if you’re buying a car as an investment (e.g. a vintage vehicle you want to sell at a profit) or for business purposes
  • Some lenders might insist on extra underwriting checks
  • Some lenders might request evidence that you’re spending the funds on a car
  • Some lenders might apply a stricter LTV cap if the property is unencumbered

In addition to these restrictions, mortgage lenders won’t approve your refinance application at all if you don’t meet their eligibility requirements. When you apply for a remortgage, your creditworthiness will be checked from scratch, so it’s a good idea to read up on lending criteria in our guide to mortgage applications, if you need a refresher on it.

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Alternatives ways to fund a car purchase

If – like most people – you aren’t in a position to buy your next car outright, there are several alternatives ways to fund the purchase, besides remortgaging.

They include…

  • Car finance: The traditional way to fund the cost of a new car. Options include personal loans, personal contract purchases, hire purchase and leasing
  • Second charge mortgages: This could be an alternative to remortgaging if you don’t qualify for a remortgage or don’t wish to take one out. A second charge mortgage is essentially a second-charge debt secured against the equity in your property. Mortgage lenders offer these for car purchases, but some might cap the total LTV at 75%.
  • Bridging loans: These short-term loans can be used for car purchases, but only under specific, niche circumstances. For example, if you were buying a high-value vintage car at an auction and will need funds to pay for it very quickly, bridging finance might be an option if other forms of lending cannot be arranged.
  • Equity release: This could only be an option if you’re over the age of 55 and don’t wish to remortgage to fund the cost of your new car. Equity release can often be taken out for any legal purpose, including lifestyle purchases.

Should you use your mortgage to buy a car?

This question is impossible to answer without a full assessment of your needs and circumstances, but one thing to be aware of is that releasing equity from a property and adding debt to a mortgage isn’t something you should do lightly.

Seeking professional advice before you decide to remortgage for this purpose is highly recommended. A mortgage broker will be able to advise you on whether remortgaging is the right option for bankrolling your car purchase, and they can also go over some of the alternatives with you, such as second charge mortgages and equity release.

Get matched with the right remortgage broker today

If you’re considering remortgaging to fund the purchase of your next car, speaking to a mortgage broker who specialises in these arrangements should be your first step.

A remortgage broker with a strong track record helping customers refinance for this exact purpose will know exactly which mortgage lenders to introduce you to and will negotiate the best interest rate, terms and loan-to-value ratio on your behalf.

We offer a free broker-matching service that will quickly assess your needs and circumstances to pair you up with the mortgage advisor who’s best positioned to help you refinance to free up funds to buy your new car.

Call 0808 189 2301 or make an enquiry and we set up a free, no-obligation chat between you and a broker who helps people remortgage to buy a car on a regular basis.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the 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.

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