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Remortgage to Buy Another Property

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How The Mortgage Centres Can Help You Remortgage

Many people regard purchasing property as a sound way to invest their money in the long term. Despite the extra fees and taxes imposed by the government on those buying second properties – either for another residence or as a buy-to-let property – with house prices looking likely to continue to increase, or at least remain stable, it can represent a reliable investment.

Whatever the reason for you considering buying a new property, you will almost certainly need to supply a deposit, which could be a significant amount, depending on the circumstances. This is where remortgaging your current home, thereby freeing up some of the value within it to deliver a cash lump sum, can be a very effective way of obtaining finance for the advance payment on another house or apartment.

You need to bear in mind that additional borrowing will entail higher monthly financial commitments, and you should have a budget and plan in place to ensure you can cover the extra outgoings. However, if you are careful, it can work out well. Here, we cover some of the details of remortgaging to buy another property.

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.

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Second Home or Rental?

When looking to buy another property, most people either want a second home for themselves, a home to be used by other family members, or a place to let out as a business investment. Here, buyers will either stay in their current home, with the second property occupied by tenants or family, or conversely, they could move to their new property while the first home is rented out or becomes the residence for their offspring or other relatives. Either way, your plan will be influenced by your current circumstances and financial needs.

Information on Remortgaging to buy another property

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.

Other Considerations

There are a few more things you should consider, aside from interest rates and monthly repayment amounts, if you are going down the route of remortgaging to buy a second property:

  • Mortgage Fees – You should make sure you check what fees you will have to pay in arranging your remortgage. The fees involved with a Buy-to-Let mortgage are usually higher than those for a standard residential property. You should also be aware of any early repayment charges levied by your current lender if you are switching products before the end of the deal term.
  • Stamp Duty – The higher the value of your second house purchase, the more Stamp Duty you will need to pay, and it can now represent a large portion of your house-buying costs. You should factor in that Stamp Duty on second homes is currently an extra 3% above the usual rate.
  • Other Renting Fees – If you are planning to rent out your current home or second property, then you will need to take into account other associated fees, such as agency fees or commissions, maintenance fees and agreement fees every time new contracts are struck.

Bearing all these factors in mind, remortgaging your current home to buy another property to use as a second home or a Buy-to-Let can still offer potentially strong returns – as long as you can be sure you will keep up repayments on your loan commitments. You should carry out proper research into the market, the amount of money you are likely to need, what this will entail in future monthly payments and how you plan to meet these financial commitments. You should also budget for a contingency plan in case things don’t work out as you anticipated.

The best way to ensure you have everything covered and are aware of all your options, whatever your circumstances, is to talk everything over with a professional mortgage advisor. One of our expert team here at The Mortgage Centres will be happy to discuss what you have in mind and give you a solid indication of what you can expect going forward. Feel free to get in touch today.

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