Remortgage to buy a property
Remortgaging is one of the most cost-effective ways for raising capital to buy a new property, although you need to make sure you have enough equity in your current property to make it worthwhile. If you have not been paying off your mortgage for very many years, you may not have built up the value you need for your next property purchase, or the costs for doing so may not stack up in comparison to the amounts involved.
If not looking to remortgage to cover the entire cost of a smaller second property (buying it outright), then you will need to ensure you can take out enough equity from your current home to cover the deposit on a new place – when buying a second property, the deposit required is often a lot higher than that for a first mortgage.
Second property mortgages
Depending on how long you have been paying your mortgage, and the shift in the value of your property over the years, you could remortgage your current home to raise some or even all of the capital required to purchase another property – either for use by a family member, or to let out to tenants as a business investment.
As ever, lenders will apply their own criteria to any borrowing, and if both properties are to be used as residencies for you personally, or for a dependent relative, then they will make an affordability assessment to determine that your income will be able to sustain the payments on the mortgage going forward.
If you are planning to let the new property out to tenants, or in fact move into the new property yourself and let out your current home (often referred to as a ‘Let to Buy’ arrangement), then lenders will take into account the anticipated rental revenue in their calculations to determine the mortgage’s affordability, and the overall risk associated with the total lending amount.
Remortgage to buy a rental property
The main advantage of remortgaging your home to buy another property to use as a Buy-to-Let investment is that you will be able to raise the necessary funds at residential mortgage interest rates, which are typically lower than those offered for Buy-to-Let mortgages.
Obviously, remortgaging your current home will cause your monthly repayments to increase, depending on the terms and duration of the new mortgage, and you should bear in mind that some criteria for residential mortgages, such as using interest-only as a repayment method, may not be available when buying another property. One option open to you is to split the remortgage, so that part of the funds for the purchase will be raised against your current home, with the remaining part being on the second property, but you should be careful to factor in all the ongoing costs of the arrangement.
You should also bear in mind that there will undoubtedly be times when your Buy-to-Let property is vacant for whatever reason, during which time you will not be receiving any income from it, yet you will still have to keep up your mortgage repayments. You will need to plan for a contingency in these circumstances, so that you do not risk losing your property.
There are several second property mortgages available on the market, and it is important to check all the various options available in order to find the deal that will best suit your requirements. Talking to an experienced mortgage advisor, such as one of our team here at The Mortgage Centres, will ensure that you are aware of all the suitable products and bring clarity to which will work best for you. Feel free to get in touch today.