How To Remortgage To Buy A Second House
Remortgaging your home is a common way to free up capital for a second home.
When you've been repaying your mortgage for many years, you've built up equity in your house that you can't really access unless you remortgage.
The money you release from your home can be invested or used to purchase a new home.
Our guide covers the pros and cons of remortgaging to buy another property, why you might want to do it, and the criteria you'll need to meet.
The following are included in this guide:
Remortgaging to buy another property: Why would I do it?
Do I have the option of letting my property and buying another one?
Are there any requirements for remortgaging a second property?
Remortgaging to buy another property: Why Would I Do It?
Here are 5 reasons why people remortgage to buy another property.
Buying a second home close to work or family
The purchase of a buy-to-let investment property for the purpose of earning income
The purchase of a property for a family member
Buying a second home or holiday property
Buying a commercial property with financing
Your reasoning for remortgaging will be taken into consideration by lenders when you apply, as it helps them determine whether you are a good candidate for a loan.
Here is a more detailed breakdown of some of these reasons:
Buying a property to become a landlord
Remortgaging one property can free up cash to purchase another for these purposes if you want to become a landlord.
You can let out your current home and move into another property after remortgaging.
If you prefer, you can stay in your current property and remortgage it to buy another to let. You have multiple options to choose from, including holiday let mortgages.
Buying a second home
Perhaps you have a long commute to work, and you’re looking to make life easier by purchasing a property close to your office. Or you could be buying a holiday home for your family, or even a property close to your current one to move some relatives to so you can support them.
All these options are acceptable to a mortgage lender depending on the specifics of your situation.
Purchasing a property for business or commercial use
Needing a second property for business or commercial use is another reason you may wish to remortgage – many lenders will be open to giving you a loan on this basis.
If you need a second mortgage to raise enough funds for the commercial property, you’ll need to justify to your new lender you can afford to repay it.
And if you’re intending to use the profits of your business to do this, you’ll need at least 2 years of accounts as evidence (but the more history you have, the better).
Is it possible to let my property and buy another one at the same time?
It is called a 'let to buy' when you rent your current property to buy another. Your current property becomes a rental property, allowing you to purchase a second property.
You will usually do this by converting your first property's mortgage into a buy-to-let mortgage - often using the rent from tenants to cover the costs - and taking out a second mortgage for your new property.
If you don't remortgage your first property, you'll likely end up with two mortgages.
As a result, you usually use the equity from your first property as a deposit for your second house.
Depending on how much capital you have raised through remortgaging, the LTV (Loan to Value) ratio on your second mortgage will likely be lower than your first mortgage.
Remortgaging to buy a second property: What are the requirements?
Several factors are taken into account by lenders when deciding whether to offer you a remortgaging loan:
Your credit status
Mortgage offers are heavily influenced by your credit history. Before applying, we highly recommend checking your credit score.
Your current property equity
Remortgaging a property has two main options. The option of getting a remortgage is to replace your original mortgage with a new one, or to take out a second mortgage against the same property.
How likely you are to be accepted depends on your strategy and the value of each property.
When determining if you can get a loan, lenders will always consider your income. The term doesn't always refer to your base salary. Benefits and reliable work bonuses are often considered as part of your income by lenders.
If you have complex forms of income, such as bonus income or company dividends, you might need a specialist mortgage.
In the same way that lenders assess your income, they also consider your expenses.
To determine what you can actually afford, they will need to know how much your usual expenses consume your income.
You should consider this when considering a second mortgage or a remortgage, as the repayments on your second mortgage add to your financial obligations.