Remortgaging your home to raise money to purchase a second property is extremely common. You can do it one of two ways depending on how much equity you own. If you have enough equity, you may be able to borrow enough money to buy the second property outright. However, it’s more common to release just enough for the deposit on the second property, and then take out another mortgage to cover the rest.
Why Would You Want To Buy A Second Property?
There are many reasons you may want to purchase a second property, and being able to raise funds by remortgaging opens up many great options. Some of our customers wish to supplement their income by investing in a Buy To Let property or a holiday let. In these cases, it can work out cheaper to maximise borrowing on the residential property in order to minimise any additional borrowing through a Buy To Let mortgage, as these usually have higher interest rates. This is something we can discuss with you based on your circumstances. Other common reasons for purchasing a second home include buying a holiday home or helping a family member get on the property ladder.
How Much Can You Borrow?
How much you can borrow depends on a number of factors. As mentioned before, the amount of equity you own in your property will affect how much you can borrow. Another way of looking at this is called ‘loan to value’. If the ‘loan to value’ on your current property is low, in other words, if the value of your home is a lot higher than your existing mortgage, then you’ll have the potential to borrow more. However, if your loan to value is high, meaning your existing mortgage makes up most of the value of your home, then you’ll have less potential to borrow because you own less equity.
Beyond equity and loan to value, how much you can borrow essentially comes down to affordability. This can include your income, bonuses, debts, living expenses, and credit score. If you’re remortgaging to buy a second property, your new mortgage will naturally be larger than your current one, and therefore lenders will want to make sure you can afford the repayments.
The important thing to know is that each lender has very different criteria and this can massively affect how much you’ll be able to borrow. Firstly, some lenders will offer higher loan to value mortgages, meaning you’ll have more room to borrow. Secondly, lenders calculate affordability very differently, which can make a huge difference to how much equity you’ll be able to release. Some lenders may allow up to 6x your salary whereas others may only allow 4x or 4.5x. Some accept all bonuses as part of your income and others only half, or none at all. Some will take benefits into consideration and others won’t. The point is, the amount you’ll be able to borrow can vary by tens of thousands of pounds depending on which lender you go to, which is why it’s so important to come in and chat with us so we can find you the right deal.
The Bottom Line
Remortgaging to buy a second property is very common, and providing you have the equity and the affordability you won’t be short of options. That being said, how much you’ll be able to borrow, and at what interest rate, will vary greatly between lenders.
We’re whole of market brokers and we know the criteria of each lender. Once we understand your situation and your plans, we’ll be able to find you a deal that suits your needs perfectly. We’ll only apply when we’re confident you’ll be accepted, to protect your credit score, and then we’ll guide you through the process easily.
It’s completely free to chat with us and discuss your situation, so click the link below to book your free consultation. We look forward to helping you!
