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Can You Remortgage to Buy Another Property or a Second Home?

A couple with the keys to a second property

In general, the answer to this question is yes, dependent on certain provisions and also providing you meet the criteria set out by different mortgage providers, you can remortgage to buy another property.

You can look at refinancing your existing mortgage provision to release equity in the property which is the subject of this mortgage.

There can be many options available, and these will vary according to your situation, the new property you want to buy and how it will be used.

What are common scenarios for second purchases?

At Mortgage360, we have years of experience in helping people to source a second mortgage to finance another property or a second home, advising on the best solutions to match individual requirements and property portfolios. Understanding exactly what your plans are and how you will use the property are important issues, as these plans will be the focus of criteria checks with a potential mortgage lender.

Here are a few potential scenarios;

Buy to let property purchase

Perhaps you are considering becoming a landlord and acquiring a rental property. This may be as an investment property opportunity, to generate rental income or diversify your income, to prepare for your retirement or even to build an inheritance for your family and children.

Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.

A second home or holiday home

Many people decide to buy a second home. Some need a base closer to work, some invest for family reasons and many buy to have the pleasure and luxury of their own holiday home in the location of their dreams – deep in the countryside or close to the sea, or even a property abroad in sunnier climes.

Buying a commercial property for business use

Acquiring a property for business use? If you’re considering buying a business property, then the rules, regulations and requirements are significantly different than for a residential mortgage. It’s important to partner with a mortgage advisor who understands the challenges of the commercial mortgage market and can advise you accordingly and connect you with specialist lenders.

Commercial mortgages are referred to a third party. Neither Mortgage360 Ltd nor PRIMIS are responsible for the service received. These services are not regulated by the Financial Conduct Authority and may have limited consumer protection.

Let-to-buy another property

It’s not unusual for people to decide to buy a new main residential property and keep their existing one, renting it out to generate income and help cover the costs of the additional mortgage. Remortgaging could be an option where additional funds are released to raise the deposit needed for the planned onward purchase.

For a family member to live in

Today’s family structures are diverse and multi-faceted. You may be considering buying a home to help your children onto the property ladder, to invest in whilst providing affordable board and lodgings while they study in a different part of the country, or even to look after elderly relatives in appropriate accommodation to keep them independent and safe.

What options do you have?

If the equity in your current property does not cover the cost of financing the additional property, then you will need to secure at least one additional mortgage. It is possible to have more than one mortgage at any given time, subject to the mortgage lender’s requirements and your stated plans and intentions.

One mortgage

You will be able to finance everything via one remortgage for the new property purchase, provided you have enough equity in your original property. Releasing equity will enable you to buy the second property outright in cash.

Two mortgages

This is the most typical situation people find themselves in. Here, part of the equity released from your first property becomes the deposit for the second property, with a second mortgage taken in tandem to cover the balance of the new property cost.

Three mortgages

A less likely but possible scenario is where you keep your original mortgage in place and take out a separate loan secured on your original home for the new property, by way of a Further Advance or Second Charge Loan. This secured loan constitutes the deposit payment for the second property purchase (which will also require its own new purchase mortgage), which effectively then means you have three mortgage arrangements in place.

What will affect how I remortgage to buy another property?

There are many variables which will impact your ability to buy a second home. These include:-

The equity in your property

Loan-to-value rates will be similar, so you will need to have at least enough equity in your first property to cover the deposit required for the second home unless of course, you have sufficient savings.

Can you afford a second property?

When applying for a mortgage for an additional property, the affordability requirements set out by the lender will be the same as they were for your original mortgage in terms of assessing your ability to cover the additional monthly mortgage repayments and the running costs of multiple properties.

Your income

Different mortgage lenders will have different rules and guidelines in place. However, as a rule of thumb, the following is likely to apply:-

  • You can expect to be able to borrow up to 4.5 times your annual income if the rental income of other properties covers those mortgage payments in full,
  • The amount you pay for your total mortgage commitment should not exceed 40% to 60% of your monthly net income, as an approximation,

Credit rating

As with any mortgage, your credit status will play an important role in deciding what you can borrow, who you can borrow from, and at what interest rate. The better your credit score, the more likely you are to secure favourable terms.

What is your credit history, and what other borrowings do you have? You can improve your credit score by:-

  • Always making credit payments on time,
  • Avoid applying for credit if you plan on making a mortgage application soon,
  • Make sure you’re on the electoral register,
  • Ensure you do not consistently run close to the spending limits set on credit cards and overdrafts,
  • Limiting the number of open credit facilities which you have to a small number,
  • Ensuring there are no discrepancies in your name and your current address is accurate and up to date,

Employment status

Your employment history and status are important, too. If you’re self-employed, or if you have recently changed jobs, this may impact your application.

What costs do I need to consider?

Don’t forget if you remortgage to buy another property, you may also accrue additional costs, from valuation fees and legal fees to issues such as an early repayment charge on existing mortgages. Plus of course, there’s the ongoing mortgage payments each month.

Think about the implications and costs carefully before you make any final decisions.

Stamp duty

In addition to the standard rate of stamp duty on the property you plan to purchase, which is dependent upon the purchase price, you may have to pay an additional 3% surcharge on each band for a second home.

Capital Gains Tax

Don’t forget Capital Gains Tax when you come to sell! Selling a property which is not your primary residence, usually makes you liable for Capital Gains Tax on the profit you make. This can be up to 20% and is dependent upon your tax bracket.

How much equity will I need?

This will vary depending on your situation and the mortgage lender’s requirements. However, a fair guideline is at least 10% to 15% of the property’s total value, based on a post-completion scenario.

How do I know what equity I have available?

Take the current value of your property and deduct the amount outstanding on your current mortgage. This is how much equity you have, however, a lender is likely to restrict a new mortgage to 85% to 90% of the property’s value.

Talk to us here at Mortgage360 – we can help you make the right assessments and determine your options.

Please note that we are unable to provide advice on the suitability of any new property for investment purposes, nor can we provide any form of tax advice and as such, we strongly recommend speaking with a suitably qualified Accountant or Tax Consultant before proceeding any further with your plans.

How do I remortgage to buy another property?

If you have sufficient equity in your current home, this can be a straightforward process. Start by consulting with a specialist mortgage broker, here at Mortgage360, to find out how to proceed. We’ll help you unlock the capital tied up in your existing property and ensure you benefit from the best deals on the market applicable to your situation.

Summary

So in answer to the original question, yes, it is possible to remortgage to buy another property. However, there are many things to consider, from initial costs like legal fees, stamp duty and early repayment charges to future implications such as the exact usage of the property and Capital Gains Tax.

Give us a call today at Mortgage360 to start the ball rolling!

The information contained within this article was correct at the time of publication but is subject to change.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Matt Illingworth

Matt has been advising since 2010 and prides himself on helping people secure their dream home, simplifying the process for his clients and supporting them every step of the way. Matt has a strong, long-term client based philosophy where his clients are his number one priority. When he is not helping his clients, Matt enjoys spending family time with his son Lucca, following football, listening to guitar music and planning lots of sunny holidays!