We've rebranded! Formerly known as Green Mortgages
We've rebranded! Formerly known as Green Mortgages
Plenty of homeowners reach a point where the value tied up in their property has grown well beyond anything they expected when they first bought it, and they start wondering whether some of that money could be put to better use. Buying a second property is one of the more common things people have in mind, whether that’s a buy to let, a holiday home or somewhere to help a grown-up child get started.
Remortgaging is usually how that gets funded. You borrow more against the home you already own, take the difference as a lump sum and put it towards the deposit on the next place. It’s a well-trodden route and lenders deal with it all the time, although there’s a fair bit more to it than simply asking your existing lender for a bigger mortgage.
In this helpful guide, our experts will explain how remortgaging to buy another property actually works, what lenders will want to know before they agree to it, what the whole thing is likely to cost you and which alternatives are worth a look before you commit to anything.
Yes, you can remortgage to buy another property, and it’s one of the more common reasons homeowners raise additional funds against their home. You remortgage for more than your current outstanding balance, take the difference as a lump sum, and put that towards the deposit on the second property, which will normally need a mortgage of its own on top.
Most lenders will consider this, though not all of them will, and the ones that do are going to want to know exactly what the money is being used for. Raising capital for an onward property purchase is treated as its own specific lending reason rather than a general release of equity, and a handful of lenders either restrict it or won’t entertain it at all. That’s less of a barrier than it might sound, but it does mean the lender you’re currently with may not turn out to be the one that works best for what you’re trying to do.
The process follows much the same shape as any other remortgage, with a bit of extra scrutiny around what you’re planning to do with the funds.
Step 1: Work out how much equity you have
Take the current market value of your home and subtract whatever is left on your mortgage. The figure you’re left with is your equity, though it’s worth remembering that having equity available and being able to borrow against all of it are two quite different things.
Step 2: Check what you could realistically release
Lenders apply a maximum loan-to-value, and your new total borrowing has to fit inside it. Most residential remortgages will go up to around 85% or 90% loan-to-value, although lenders often take a more cautious view when the money is being raised to buy another property.
Step 3: Tell the lender what the money is for
You’ll be asked to state the purpose of the additional borrowing, and this is where lender criteria start to differ quite noticeably. Some are comfortable with an onward purchase, others want more detail about the property you’re buying, and a few won’t allow it as a reason at all.
Step 4: Go through affordability and the valuation
Your income, outgoings, credit history and existing commitments all get reviewed, and a valuation is carried out on your current home to confirm what it’s worth. If you’re taking on a second mortgage as part of the plan, that commitment gets factored into the assessment as well.
Step 5: Funds are released and the purchase goes ahead
Once the remortgage completes, the additional borrowing is paid across to you and can go towards the deposit on the new property. From there it becomes a fairly standard purchase, with its own mortgage application running alongside.
Funding a buy to let purchase is far and away the most common reason homeowners look at this, and it works reasonably well because buy to let lenders expect a much larger deposit than a residential purchase would need. You’ll usually be looking at a minimum of 25%, which is a sizeable chunk of cash to find from savings alone, so releasing it from a property you already own makes the numbers work for a lot of people.
Buy to let mortgages are assessed differently to residential ones. Rather than looking primarily at your personal income, lenders focus on whether the expected rental income covers the mortgage payment by a comfortable margin, usually somewhere between 125% and 145% depending on the lender and your tax position. Your personal income still matters, and some lenders will use it to support a shortfall, but the rent is doing most of the work.
It’s worth being clear-eyed about what you’re taking on here. You’d be running two mortgages, with the borrowing on the rental property secured against that property and the deposit you raised secured against your own home. If the rental stands empty for a few months, the payments on both still need covering.
There are a few costs that catch people out, and they add up to more than most people budget for at the outset.
None of that makes the plan a bad one, and for many homeowners the numbers still stack up comfortably. It does mean the deposit you release needs to be big enough to cover the purchase and the costs that come with it, rather than just the deposit itself.
Alongside the usual affordability and credit history checks, lenders will be paying attention to a few things that are specific to this kind of borrowing.
They’ll look at how much equity you’re leaving behind in your own home, because releasing too much makes the whole arrangement more fragile. They’ll also want to understand what you intend to do with the new property, since a straightforward buy to let is viewed differently to a holiday let or somewhere a family member will live. And they’ll test whether you could still manage if rates rose, which usually means assessing the payments at a higher rate than the one you’re being offered.
Before you go much further, it helps to see what the payments would actually look like on a larger mortgage. Our mortgage payment calculator will give you a sense of how your monthly outgoings would change once the additional borrowing is added, which makes the conversation with an advisor a lot more productive when you get to it.
Advantages
Risks
Remortgaging isn’t the only way to get there, and depending on your circumstances one of these may suit you better. A let to buy mortgage lets you keep your current home and rent it out while buying somewhere new to live, which suits people who are moving rather than investing.
A further advance means borrowing more from your existing lender on top of your current mortgage, leaving the deal you’re already on untouched. That can work out better if your current rate is strong or if leaving early would trigger a meaningful early repayment charge. A second charge mortgage does something similar through a separate lender, at a higher rate, but again without disturbing the main mortgage.
It tends to work best when you’ve built up a decent amount of equity, your income comfortably supports the larger borrowing and you’ve got a clear plan for the second property. Where finances are already stretched, or releasing the deposit would leave very little equity behind, it’s worth looking at the alternatives first.
At Proper Advice we work with over 90 high street and specialist lenders, which matters more than usual here given how differently they treat capital raising for an onward purchase. We’ll tell you what’s realistic before you spend money on valuations and legal work.
Fill out our contact form, give us a call on 01244 955 399 or email us at info@properadvice.co.uk.
FAQs
There’s no fixed figure, but you’ll need enough to cover the deposit on the new property and the associated costs while staying inside your lender’s loan-to-value limit. For a buy to let needing a 25% deposit, that usually means having released a meaningful amount without pushing your own mortgage above around 85% loan-to-value.
Yes, and the process is much the same, though lenders will treat a holiday home or second residence differently to a buy to let because there’s no rental income supporting it. Affordability will be assessed on your income alone, and the stamp duty surcharge still applies.
Yes. Buying an additional property means paying a surcharge of 5% on top of the standard stamp duty rates. It applies to the whole purchase price, so it needs building into your budget from the start rather than treating it as an afterthought. Use the stamp duty calculator on the UK Government’s website here.
Sometimes, through a further advance, although lenders vary on whether they’ll allow the funds to be used for an onward purchase. If your current lender says no, remortgaging to a different lender is usually the way around it, and a broker can tell you which ones are comfortable with it.
Your home/property may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage. Not all Buy to Let mortgages are regulated by the Financial Conduct Authority.
