How to remortgage to buy another property

Purchasing an additional property can be a major financial decision, with various potential benefits and risks. Whether you’re looking to remortgage to buy another property, expand your investment portfolio, planning to buy a holiday home, or assisting a family member in stepping onto the property ladder, remortgaging your current home can provide the necessary funds.

The process of remortgaging involves replacing your existing mortgage with a new one, usually with a different lender. It allows you to release some of the equity tied up in your home to fund your new property purchase. This equity is the portion of your property that you own outright, and it increases as you pay off your mortgage and as the value of your property rises.

In this guide, we’ll explore “How to remortgage to buy another property.” We’ll look at how remortgaging works, the steps involved, how much you can borrow, the costs, and important considerations like tax implications. By the end of this guide, you’ll have a clear understanding of the remortgaging process, enabling you to make an informed decision about your property ambitions.

Can you remortgage to buy a second house?

Yes, you can remortgage to buy a second house. This is often referred to as “equity release” or “capital raising”. In this process, you take out a new mortgage on your existing property for a higher amount than your current mortgage, and use the extra funds as a deposit for another property.

The equity in your property is the value of your home minus the outstanding balance of your current mortgage. As you pay off your mortgage, or if the value of your property increases, you build up equity. When you remortgage, you can borrow against this equity, up to a certain limit, usually around 85% of the value of your property, but this can vary depending on the lender and your circumstances.

For example, if your home is worth £300,000 and you have £150,000 left to pay on your current mortgage, you have £150,000 in equity. You might be able to remortgage for £225,000 (75% of the property value), giving you £75,000 (minus any fees) to put towards the purchase of another property.

This can be a good strategy if you’re looking to buy an investment property or a second home, but it does increase your overall level of debt, so it’s important to ensure you can afford the repayments on the new mortgage.

As with all financial decisions, it’s recommended to seek advice from a financial advisor or mortgage broker to ensure this is the right decision for your personal circumstances.

What is remortgaging?

Remortgaging is the process of switching your existing mortgage to a new deal, either with your current lender or a different one. Homeowners typically remortgage to secure a lower interest rate, reduce monthly payments, borrow more money against their home’s equity, or change their mortgage terms. The process involves paying off your current mortgage with the funds from the new mortgage, potentially leading to better financial terms or additional cash for the homeowner. This can be an effective way to capitalize on equity built up in the property or to take advantage of lower rates available in the market.

How does remortgaging work?

Here’s a general overview of how remortgaging works in the UK:

Step 1: Review your current mortgage

The first step is to understand the details of your existing mortgage, including the remaining balance, current interest rate, term length, and any early repayment charges (ERCs) you might incur by remortgaging before the end of your current deal.

Step 2: Determine your goals

Decide why you want to remortgage. Common reasons include saving money by securing a lower interest rate, raising capital by releasing equity from your home, or changing the type of mortgage (e.g., from interest-only to repayment).

Step 3: Assess your financial situation

Lenders will evaluate your income, credit history, and the equity in your home to determine your eligibility for a new mortgage. It’s a good idea to check your credit report and assess your financial stability before applying.

Step 4: Shop around for deals

Compare mortgage deals from different lenders to find the best rates and terms that suit your needs. You can use comparison websites, consult a mortgage broker, or approach lenders directly.

Step 5: Apply for the new mortgage

Once you’ve chosen a deal, you’ll need to formally apply for the new mortgage. This will involve providing detailed financial information and possibly undergoing a valuation of your property to confirm its worth.

Step 6: Legal and valuation checks

The new lender will conduct a valuation of your property to ensure it provides sufficient security for the loan. You may also need a solicitor or conveyancer to handle the legal aspects of transferring the mortgage.

Step 7: Approval and offer

If the application is successful, the lender will issue a formal mortgage offer. This will detail the terms of the mortgage, including the interest rate, repayment period, and any fees.

Step 8: Completion

Once everything is in order, the new mortgage will be finalized. Your new lender will pay off your existing mortgage, and you’ll start making monthly payments under the new terms.

Step 9: Aftercare

Review your mortgage regularly to ensure it remains competitive. Consider remortgaging again in the future if you can secure a better deal or if your financial situation changes.

Remortgaging can offer significant financial benefits, such as reduced payments or the ability to borrow additional funds. However, it’s important to carefully consider the costs involved, including any fees and charges, to ensure that remortgaging makes financial sense for your situation.

Which type of property can I buy with a remortgage?

With a remortgage, you can potentially buy any type of property, as long as it’s in a condition that’s acceptable to the mortgage lender, and as long as you can afford the repayments. Here are a few examples of property types:

Residential property: If you’re planning to live in the new property, it would typically be a standard residential property – a house or a flat.

Investment property (Buy-to-Let): If you’re planning to rent out the property, it would typically be a residential property that you rent out to tenants. This could be a house, a flat, a maisonette, or even a multi-unit building. For these types of mortgages, lenders usually require that the potential rental income is a certain percentage above the mortgage payments.

Holiday let: Some people use a remortgage to buy a holiday home, either for personal use or to rent out on a short-term basis. Keep in mind that mortgages for holiday lets can sometimes have different criteria and may be harder to obtain than standard residential or buy-to-let mortgages.

Commercial property: It may be possible to remortgage to buy a commercial property, such as a shop or office building, but this would typically require a commercial mortgage, which can have different criteria and may be harder to obtain than a residential mortgage.

Development or renovation property: If you’re planning to buy a property to renovate and sell on, or a piece of land to develop, you may be able to do this with a remortgage. However, properties that are not in habitable condition at the time of purchase might not be eligible for standard mortgages. You might need a specific type of finance, such as a bridging loan or a development loan.

Land: Another option is to purchase land for development or investment purposes. This can involve buying a plot with planning permission to build your property or acquiring land to hold as a long-term investment.

How long does it take to remortgage to buy another property?

The time it takes to remortgage to buy another property can vary significantly depending on several factors, but as a general guideline, it can take anywhere from 4 to 8 weeks on average.

Here’s a breakdown of the factors that could affect the timeline:

Mortgage application: Gathering the necessary documents and completing the application can take a week or two. This includes proof of income, identification, bank statements, details of debts and expenses, and possibly more.

Property valuation: The lender will need to value your existing property to determine how much they’re willing to lend you. The timing for this can depend on the availability of a surveyor, but it typically takes about a week.

Mortgage offer: Once the lender is satisfied with the valuation and your application, they will issue a mortgage offer. This can take 1-2 weeks from the time of the application.

Legal work: The legal work involved in remortgaging can take several weeks. A solicitor or conveyancer will need to handle the legal aspects of paying off your existing mortgage and setting up the new one. They’ll also deal with the legal work involved in purchasing the new property.

Completion: Once the legal work is done, you can complete the remortgage and the purchase of the new property.

It’s worth noting that delays can happen at any stage of the process, especially if there are complexities such as issues with the property title, problems found during the valuation, or if the lender requires additional documentation. Also, remember that the process of purchasing the new property (finding a property, making an offer, having an offer accepted, etc.) will also take time and will be running concurrently with the remortgage process.

How much can I borrow?

When remortgaging, the amount you can borrow depends on several factors:

Equity and property value: The current value of your property and the amount of equity you have built up will influence the maximum amount you can borrow. Lenders use the loan-to-value (LTV) ratio to determine how much money they are willing to lend. For example, if your property is worth £300,000 and the lender offers an 80% LTV mortgage, you can borrow up to £240,000.

Affordability and income: Lenders assess your income and financial situation to determine how much you can afford to borrow. They will consider your salary, bonuses, rental income, pension, and any other sources of income. Typically, lenders apply a multiple of your annual income (usually between 3 to 5 times) to calculate the maximum loan amount.

Credit score: Your credit score plays a significant role in determining how much you can borrow. A higher credit score indicates lower risk to the lender and may allow you to access larger loan amounts and better interest rates.

Existing debts and monthly expenses: Lenders will also consider your existing debts, such as credit card balances, personal loans, and other financial commitments, when determining how much you can borrow. Your monthly expenses, including utility bills, insurance premiums, and childcare costs, will also be taken into account to assess your affordability.

Mortgage term and interest rates: The interest rate and term of the mortgage will also influence how much you can borrow. A lower interest rate and a longer mortgage term can result in lower monthly payments, potentially allowing you to borrow more. However, keep in mind that a longer-term will also mean paying more interest over the life of the loan.

To estimate how much you can borrow for remortgaging, consult with mortgage brokers. They can help you assess your financial situation and provide personalised guidance on the maximum loan amount you can afford. Keep in mind that each lender has its lending criteria, so it’s essential to shop around and compare multiple offers to find the best deal.

Why do I need equity to remortgage?

Equity is important in remortgaging because it represents the amount of the property that you actually own outright. Here’s how it works:

When you buy a property with a mortgage, the mortgage lender gives you a loan for a certain percentage of the property’s value, and you make a down payment for the rest. Over time, as you pay down the mortgage, your equity—the portion of the property that you own outright—increases.

If you want to remortgage, the lender will look at how much equity you have in your home. This is important for two reasons:

Risk: From the lender’s perspective, a borrower who has a lot of equity in their home is less risky. If you were to stop paying your mortgage and the lender had to repossess and sell your home, they would be more likely to recover the full amount of the loan if you had a lot of equity.

Loan amount: The amount of equity you have in your home will also influence how much you can borrow when you remortgage. If you have a lot of equity, you might be able to borrow more, depending on your income and other financial circumstances. This is because the loan is secured against the value of your property, so having more equity can enable you to access a larger sum.

Remember, increasing your mortgage – whether by remortgaging or by taking out a second mortgage – will increase your monthly repayments and the overall amount of interest you pay.

So, while equity can allow you to borrow more, it’s important to ensure you can afford the increased repayments.

How much equity do I need to buy another house?

The amount of equity you need to buy another house depends on several factors, including the price of the new property, the mortgage requirements, and your financial situation. Here are some general guidelines to consider:

Loan-to-value (LTV) ratio: When purchasing another property, lenders typically require a minimum LTV ratio. For residential mortgages, lenders may offer LTV ratios up to 90–95%, which means you would need at least a 5–10% deposit. However, if you’re looking to purchase a buy-to-let property, the LTV ratios are usually lower, often around 75%, requiring a 25% deposit.

Mortgage affordability: Lenders will assess your income and financial situation to ensure that you can afford the mortgage on the new property. They will consider factors like your existing mortgage, other debts, and monthly expenses to determine your ability to manage an additional mortgage. Having more equity in your current property can help demonstrate your financial stability and improve your chances of securing a mortgage for the new property.

Deposit requirements: The amount of equity you need to buy another house will depend on the deposit required for the new property. As a general rule, a larger deposit will result in better mortgage terms and lower interest rates. For buy-to-let properties, you typically need a deposit of at least 20–25% of the property’s value. For a second residential property, you may need a deposit of at least 5–10%.

Stamp duty land tax (SDLT): When purchasing an additional property in the UK, you will be subject to an additional SDLT surcharge. This surcharge is typically 3% on top of the standard SDLT rates. The equity you have in your current property can help cover this additional cost.

In summary, the amount of equity you need to buy another house depends on factors like the LTV ratio, mortgage affordability, deposit requirements, and additional costs like SDLT. To determine the specific amount of equity you need, it’s essential to evaluate your financial situation, consult with a mortgage broker or financial advisor, and research the property market in your desired location.

Keep in mind that property investments come with inherent risks and are subject to market fluctuations. It’s crucial to maintain a long-term perspective and be prepared for potential changes in the housing market or your personal financial situation. Regularly review your property investments and stay informed about market trends to maximise your chances of success.

Will I be able to afford a second property?

Whether you can afford a second property depends on a variety of factors. Here are some key things to consider:

Income: Do you have a stable income that can comfortably cover the mortgage repayments for both properties, as well as other costs such as maintenance, insurance, and taxes? If you plan to rent out the second property, potential rental income will be taken into account, but it’s generally not a good idea to rely solely on rental income to cover your costs.

Equity: Do you have sufficient equity in your current property? The more equity you have, the more you might be able to borrow.

Debt: How much other debt do you have? If you have significant debts, this might affect your ability to get a mortgage, and it might make the mortgage repayments more difficult to manage.

Savings: Do you have enough savings to cover the upfront costs of buying a property, such as the deposit, stamp duty, legal fees, and survey costs? You should also have some savings set aside for unexpected costs or periods when the property might be unoccupied (if you’re planning to rent it out).

Risk tolerance: Can you manage the risk involved with buying a second property? Property values can go down as well as up, and if you’re renting the property out, there can be periods of vacancy or issues with tenants.

Long-term plan: How does owning a second property fit with your long-term financial goals? For example, will it help you build wealth, or could it potentially be a financial drain?

What are the risks involved in remortgaging to buy a second home?

Remortgaging to buy a second home can be a sound financial decision, but it does come with potential risks. Here are some of the key risks involved:

Increased debt: By remortgaging, you are increasing the amount of debt you owe. If you are unable to keep up with the repayments, you may end up in financial distress. In the worst-case scenario, you could risk foreclosure on your primary residence if you can’t pay back the loan.

Interest rate changes: If you opt for a variable rate mortgage and interest rates increase, your mortgage payments could also increase. This could affect your ability to keep up with repayments, especially if you have significantly increased your borrowing.

Property market fluctuations: If the property market dips and the value of your properties decreases, you might end up in a negative equity situation. This is where the total mortgage debt is more than the value of the property.

Costs of second home ownership: Owning a second home comes with additional costs such as maintenance, repairs, insurance, and possibly higher rates of property taxes. If the property is vacant for long periods, you might also have additional security costs.

Potential rental issues: If you are planning to rent out the second property, consider potential issues like vacancies, unreliable tenants, or unexpected maintenance and repair costs.

Tax implications: Buying a second property could have tax implications, including capital gains tax if you sell the property in the future. In the UK, you will also have to pay an additional Stamp Duty Land Tax charge when buying a second property.

How does remortgaging for a second property affect my credit score?

Remortgaging for a second property can have an impact on your credit score in several ways:

Credit applications: Every time you apply for credit, including a mortgage, the lender will perform a credit check. This is recorded on your credit file and can slightly lower your credit score, especially if you make several applications in a short period of time. However, this effect is usually temporary, and your score should recover over time if you keep up with your repayments.

Debt level: The amount of money you owe compared to your total available credit, also known as your credit utilisation, is a significant factor in your credit score. If remortgaging significantly increases your overall debt, it could lower your credit score.

Payment history: Your payment history is the most important factor in your credit score. If you take on a larger mortgage and struggle to make the payments, any missed or late payments will negatively impact your credit score.

Credit age: The length of your credit history can also affect your credit score. If your existing mortgage is your oldest form of credit and you switch to a new lender, it could shorten your average credit age and potentially lower your score.

Before remortgaging, consider checking your credit report to understand your current credit standing. Also, ensure you can comfortably afford the new mortgage repayments to avoid negatively impacting your credit score due to missed or late payments.

Can I buy another home if I have bad credit?

Yes, it is possible to buy another home if you have bad credit, but it can be more challenging. Here’s why:

Lenders use your credit score as one factor in determining how risky it is to lend to you. If you have a history of missed payments, defaults, or other negative marks on your credit report, lenders might see you as a higher-risk borrower. This can make it harder to get a mortgage, and if you do get approved, you might be offered a higher interest rate.

However, having bad credit doesn’t necessarily mean you can’t get a mortgage at all. Here are a few options:

Improving your credit score: Before applying for a mortgage, you might want to take some time to improve your credit score. This could involve paying down debt, making sure you make all your payments on time, and correcting any errors on your credit report.

Finding a suitable lender: Some lenders specialise in providing mortgages to people with bad credit. These are often called “subprime” mortgages. The interest rates on these mortgages are usually higher, but they can provide a way for people with bad credit to buy a home.

Using a guarantor: If you have a friend or family member who has a good credit score and is willing to act as a guarantor, this could help you get a mortgage. However, this is a significant commitment for the guarantor, as they will be responsible for the mortgage if you can’t make the repayments.

Saving a larger deposit: The more money you can put down as a deposit, the less risky the mortgage is for the lender. So, if you have bad credit, saving up for a larger deposit could help you get approved for a mortgage.

How to remortgage a buy to let property to expand a portfolio

Remortgaging a buy-to-let property to expand your portfolio involves releasing equity from your existing property or properties to help fund the purchase of additional properties. Here’s how you can do it:

Assess your current equity: Equity is the portion of your property that you own outright, and it’s calculated as the current market value of the property minus any outstanding mortgage balance. A high amount of equity gives you a better chance of securing a larger loan.

Research market conditions: Check the interest rates and terms offered by different lenders for remortgaging buy-to-let properties. Conditions can vary widely, so it’s important to shop around.

Affordability assessment: Lenders will look at your income, existing financial commitments, and the rental income from your properties to determine how much they can lend you. The rental income from your buy-to-let property usually needs to be 125–145% of your mortgage interest payments, depending on the lender’s criteria.

Remortgage application: Once you’ve found a suitable lender, you can apply for the remortgage. The lender will require a valuation of your property and will assess your overall financial situation.

Use the equity to purchase additional properties: Once the remortgage is approved and the funds are released, you can use them as deposits to purchase additional properties. This is typically done through a buy-to-let mortgage for each new property.

Here are a few things to consider:

Risk: Expanding your property portfolio increases your exposure to the property market. If property prices fall or if you have problems with rental income (for example, due to vacancy or non-payment of rent), you could face financial difficulties.

Tax implications: The UK has specific tax rules for buy-to-let properties, including how rental income is taxed and how mortgage interest can be deducted. There are also stamp duty implications when buying additional properties. It’s important to understand these implications and factor them into your calculations.

Property management: Managing multiple properties can be time-consuming and complex. You may need to consider the costs of using a property management company.

Regulations: Buy-to-let properties are subject to specific regulations, including safety regulations and the need to provide tenants with certain documents. Make sure you understand these requirements.

Should I release equity to buy another house?

Releasing equity to buy another house can be a good idea under certain circumstances, but it’s not the right decision for everyone. Here are some factors to consider:

Pros of releasing equity to buy another house:

Income generation: If you’re planning to rent out the new property, it could generate a steady stream of rental income, which could help to cover the cost of the additional mortgage and potentially provide a profit.

Property appreciation: Over time, property can appreciate in value, which could potentially increase your overall net worth.

Diversification: If you already have investments in other areas, buying another property can help to diversify your investment portfolio.

Cons of releasing equity to buy another House:

Increased Debt: Releasing equity to buy another house will increase your overall level of debt. This will lead to higher monthly mortgage payments, and if you can’t keep up with the payments, you could potentially lose both properties.

Risk of property market downturn: If property prices fall, you could end up in negative equity, – this is when the mortgage is larger than the value of the property.

Rental risks: If you’re planning to rent out the property, there are also risks associated with rental properties. These include periods of vacancy when no rent is coming in, non-payment of rent, and the costs of maintaining the property.

Costs and fees: There will be costs involved in buying the new property (like stamp duty and legal fees), and costs involved in remortgaging your current property (like valuation fees and potentially early repayment charges).

Before deciding to release equity to buy another house, it’s a good idea to seek advice from a financial advisor. They can help you understand the potential risks and rewards, and make a decision that’s right for your personal circumstances and financial goals.

How much deposit do I need to buy a second house?

The amount of deposit you’ll need for a second house in the UK can vary depending on several factors, including your credit score, income, and the type of mortgage you’re seeking. Here’s a general guideline:

Residential mortgages: If you’re buying a second home for personal use, you’ll likely need a similar deposit to your first residential mortgage. This typically ranges from 5% to 20% of the property’s value, although a deposit of 10–15% is more common. However, the specific amount can depend on the lender’s criteria and your personal circumstances.

Buy-to-let mortgages: If you’re buying a second home as an investment to rent out, you’ll typically need a larger deposit. For a buy-to-let mortgage, lenders usually require a deposit of at least 25% of the property’s value, although this can sometimes be as high as 40%.

Remember, the larger your deposit, the lower your loan-to-value (LTV) ratio will be. A lower LTV usually gives you access to better mortgage rates, as it reduces the lender’s risk.

Can I remortgage an inherited property?

Yes, you can remortgage an inherited property, provided you are the legal owner of the property. There are several reasons why you might choose to do this, such as to raise funds for property improvements, to pay off the existing mortgage (if there is one), or to help finance the purchase of another property. Here are the steps you would need to follow:

Probate: Before you can remortgage an inherited property, you’ll need to go through the probate process. This is a legal process where the estate of the deceased person is administered and distributed according to their will (or according to legal guidelines if there’s no will). Once probate is complete, the property should legally be in your name.

Valuation: You’ll need to know the value of the property. The remortgage lender will typically require a formal valuation by a surveyor.

Mortgage application: You can then apply for a remortgage in the same way you would with any property. The lender will assess your income, outgoings, credit history, and the value of the property to determine how much they’re willing to lend.

Legal process: If your application is approved, you’ll go through a similar legal process to when you buy a property, including conveyancing and searches. The funds from the remortgage will be used to pay off any existing mortgage on the property, and any remaining funds will be given to you.

Keep in mind that remortgaging a property will increase your monthly repayments and the overall amount of interest you pay over the life of the mortgage, so it’s important to ensure that you can afford the increased repayments.

Also note that some lenders may require you to wait for a certain period, typically 6 to 12 months, after you’ve inherited the property, before they will consider a remortgage application. It’s always a good idea to get independent financial and legal advice before making decisions about property and mortgages.

Should I remortgage to buy a house if I have an early repayment charge?

If you’re considering remortgaging to buy another house, but you have an early repayment charge (ERC) on your current mortgage, you’ll need to take this additional cost into account.
An early repayment charge is a fee you have to pay if you repay your mortgage (or overpay more than is allowed) during a certain period. This period usually corresponds to the initial fixed, discount, or tracker period of a mortgage deal. The ERC can be a significant amount, often a percentage of the outstanding mortgage balance.

Here’s what you should consider:

The size of the charge: Look at how much the early repayment charge is and weigh this against the potential benefits of remortgaging. If the ERC is large, it might outweigh the potential benefits.

The timing: Consider how long you have left on your current mortgage deal. If the ERC period is close to ending, it might be worth waiting until it has ended before remortgaging.

The new deal: Look at the terms of the remortgage deal you’re considering. If the new mortgage has a significantly lower interest rate or other features that could save you money, it might be worth paying the ERC.

Your long-term goals: Consider your long-term financial goals. If buying another property aligns with these goals, it might be worth paying the ERC, especially if the potential financial gain from the new property is greater than the cost of the charge.

Am I able to remortgage my house to buy another if I’ve got a new job?

Yes, you can remortgage your house to buy another one, even if you’ve recently started a new job. However, there are some important factors to consider:

Employment status: If you’re on probation or if your new job is temporary or contract-based, this might affect your ability to get a mortgage. Lenders generally prefer borrowers who have stable, long-term employment.

Income: Lenders will look at your income to determine how much you can borrow. If your income has increased in your new job, this might enable you to borrow more. Conversely, if your income has decreased, or if it’s now variable or commission-based, this might limit the amount you can borrow.

Job industry: If your new job is in a similar industry to your previous job, lenders might view this as more stable than if you’ve made a significant career change.

Time in the job: Some lenders prefer borrowers to have been in their current job for a certain period of time (often at least three months, sometimes six months or more) before applying for a mortgage.

Future job stability: Lenders will also look at your future job stability. If your new job is in an industry that’s facing difficulties or if there are other factors that might affect your future employment, this could impact your mortgage application.

In general, every lender has different criteria, so it’s a good idea to speak to a mortgage broker or financial advisor. They can help you understand your options and find a lender who’s likely to accept your application.

Can I remortgage to buy a property for my children?

Yes, you can remortgage to buy a property for your children. You can release equity from your current home by taking out a new, larger mortgage and then use the extra funds to help your children buy a property.

What is equity release, and how can it be used to buy another property?

Equity release is a way for homeowners, typically over the age of 55, to release some of the value (equity) of their home as cash, while continuing to live in the property. This cash can be used for various purposes, including helping to buy another property. There are two main types of equity release schemes:

Lifetime mortgage: This is the most common form of equity release. The homeowner takes out a mortgage secured on their property, provided it is their main residence, while retaining the right to live there. The loan amount and any accrued interest are paid back when the homeowner either dies or moves into long-term care.

Home reversion: With a home reversion scheme, the homeowner sells part or all of their home to a home reversion provider in return for a lump sum or regular payments. The homeowner has the right to continue living in the home until they die, rent-free, but they have to agree to maintain and insure it.

Using equity release to buy another property is possible, but it can be complex. This could be done to downsize to a smaller property while releasing some cash, or perhaps to help a family member purchase a home. However, there are important considerations:

Interest: With a lifetime mortgage, interest is typically rolled up into the loan, meaning the amount you owe can grow quickly over time as interest accumulates.

Inheritance: Equity release can reduce the value of your estate and, therefore, the amount you would be able to leave to your heirs.

Eligibility: There are age and property value requirements for equity release.

Moving house: If you want to move to a different property, you would have to repay the equity release loan, unless your provider agrees to transfer it to the new property.

Fees: There can be substantial fees associated with setting up an equity release scheme.

Can I remortgage to buy a property abroad?

Yes, you can remortgage your current home to release equity and use the funds to buy a property abroad. This process is much like remortgaging to buy a second property domestically. You would take out a new mortgage on your existing property for a higher amount than your current mortgage, and then use the additional funds to purchase a property overseas.

However, buying a property abroad can come with its own unique challenges, including:

Currency risk: The exchange rate between the currency of your home country and that of the country where you plan to buy a property can fluctuate. This could affect the value of your property and the cost of your mortgage.

Legal system: Property laws can vary greatly between countries. It’s crucial to understand the buying process, your rights as a property owner, and any potential risks in the country where you plan to buy.

Local taxes: You’ll need to understand the tax implications both in the country where you are buying and in your home country. This could include taxes on property purchases, property taxes, and taxes on any rental income or profit from selling the property.

Mortgages: Some people choose to get a mortgage in the country where they’re buying the property, rather than remortgaging their existing home. Lenders’ criteria and interest rates can vary between countries.

Language barrier: If you’re buying in a country where you don’t speak the language, it can be more challenging to navigate the process.

Keeping the cost of remortgaging down: expert tips from mortgage advisers

Remortgaging can come with several costs, including early repayment charges, exit fees, arrangement fees, valuation fees, legal fees, and potentially broker fees. Here are some expert tips to help keep these costs down:

Early repayment charges (ERC): If you are still within the initial rate period of your mortgage, you may have to pay an ERC. It’s important to calculate whether the potential savings of remortgaging will outweigh this cost. Sometimes, it may be beneficial to wait until the ERC period ends before remortgaging.

Exit fees: Check if there is an exit or deed release fee to pay your current lender when you leave them.

Arrangement fees: Some new mortgage deals come with arrangement fees, which can be quite high. Although mortgages with higher fees often have lower interest rates, this is not always the case. It’s important to calculate the total cost of the mortgage over the deal period, including both the interest and the fees.

Valuation fees: Some lenders charge a fee to value your property. However, many offer a free valuation as part of the mortgage deal, so it can be worth looking for a deal that includes this.

Legal fees: You’ll usually need a solicitor to handle the legal aspects of the remortgage. Some lenders offer free basic legal work as part of the remortgage deal, which can save you money.

Broker fees: If you’re using a mortgage broker, they may charge a fee for their service. However, brokers can often access deals that you can’t find yourself and can save you money in the long run. Some brokers are fee-free because they receive a commission from the lender instead.

Consider a product transfer with your current lender: Sometimes, the best way to keep costs down is to stay with your current lender and do a product transfer onto one of their new deals. This can avoid some of the fees associated with remortgaging, although it’s still important to compare deals from other lenders to ensure you’re getting the best rate.

What are your options: one mortgage, two, or three?

Choosing to have one, two, or three mortgages can depend heavily on your financial situation, income, long-term goals, and risk tolerance. Let’s break down what each option could look like:

One mortgage: This is the most straightforward option and the least risky. You only have one loan to worry about, and managing a single mortgage can be simpler. If you’re not comfortable with a lot of debt or risk, sticking with one mortgage may be the best choice.

Two mortgages: If you decide to purchase a second home or an investment property, you might end up with two mortgages. This could potentially yield financial benefits such as rental income or capital appreciation. However, managing multiple properties can be complicated, and there’s a higher financial risk if property values fall or if you can’t keep up with both mortgage payments.

Three mortgages: This could apply if you’re expanding your property portfolio further. Having three mortgages can offer more potential income through rent and diversify your investments across different properties. However, the financial risk is even higher, and managing three properties can be challenging.

Remember, regardless of the number of mortgages, each property purchase will typically require a deposit, and lenders will thoroughly assess your financial situation to ensure you can afford the repayments.

Other considerations

There are other financial considerations when buying additional properties, especially if you’re considering taking on more mortgages. Here are some of the key things to think about:

Stamp duty land tax (SDLT): In the UK, if you’re buying an additional property, you’ll usually have to pay an extra 3% in stamp duty on top of the standard rates. The rate you pay depends on the property’s price.

Capital gains tax (CGT): If you sell a property that is not your main home and make a profit, you may need to pay Capital Gains Tax. The rate you pay depends on your income tax band and the amount of profit you make. You also get an annual tax-free allowance for capital gains.

Income tax on rental income: If you’re planning to rent out the property, you’ll have to pay income tax on the rental income you receive. You’ll need to declare this income on a Self Assessment tax return.

Council tax: Each property will have its own Council Tax bill, which you’ll need to pay unless the property is exempt (for example, if it’s unoccupied and unfurnished).

Insurance: You’ll need to have buildings insurance for each property, and you may also want contents insurance, especially if you’re renting out the property. You may also consider landlord insurance if the property is to be let.

Maintenance and repairs: If you’re renting out the property, you’ll be responsible for maintenance and repairs. Even if you’re not renting it out, additional properties will still require upkeep which can be costly.

Can I remortgage my buy-to-let property to buy another house?

Yes, it’s possible to remortgage a buy-to-let property to buy another house. This is often referred to as “capital raising.” Essentially, you would be releasing equity from your buy-to-let property by taking out a new, larger mortgage on it. The additional funds raised can then be used towards purchasing another property.

How does remortgaging work when buying an investment property?

Remortgaging to buy an investment property works similarly to remortgaging for any other purpose. You’re essentially borrowing against the equity in your current property to fund the purchase of another.

Can I remortgage my house to buy a rental property?

Yes, you can remortgage your house to buy a rental property, also known as a buy-to-let property. This involves taking out a new, larger mortgage on your existing home and using the extra funds for the deposit on a buy-to-let mortgage or to purchase the rental property outright, depending on the amount of equity available in your home.

Can I remortgage a paid-off house to buy another property?

Yes, you can remortgage a paid-off house, also known as an “unencumbered” house, to buy another property.

Once you have fully paid off your mortgage, you own 100% of the equity in your home. This means you may be able to borrow a significant amount of money against your property, depending on its value and the lender’s loan-to-value (LTV) limit.

You would go through a similar process as remortgaging a house with an existing mortgage. The lender would assess your income, credit history, and the value of your home to determine how much they’re willing to lend you. They would also likely require a property valuation.

However, while it might seem straightforward, remortgaging a fully paid-off house can sometimes be more challenging than remortgaging a house with an existing mortgage. This is because some lenders may be wary of “equity release” or “capital raising” remortgages, particularly if the house has been unencumbered for a long time. The lender may require a more detailed explanation of why you wish to release the equity and what the funds will be used for.

As always, it’s important to consider your personal financial situation, the potential risks and costs, and seek professional advice before deciding to remortgage a paid-off house to buy another property. Make sure that you can comfortably afford the new mortgage repayments to avoid the risk of losing your home if you’re unable to pay back the loan.

How do interest rates affect the process of remortgaging to buy another property?

Interest rates play a critical role in the process of remortgaging to buy another property. Here’s how they affect various aspects of this process:

Cost of borrowing: The interest rate directly impacts the cost of your mortgage. A lower interest rate means lower monthly payments and less interest paid over the life of the loan, making the cost of borrowing cheaper. Conversely, a higher interest rate results in higher monthly payments and a higher overall cost of borrowing.

Loan approval: Lenders consider your ability to meet monthly repayments when deciding whether to approve your mortgage. A high interest rate could increase your monthly repayments and reduce the amount a lender is willing to lend you.

Market conditions: Interest rates can also reflect the general state of the economy. When rates are low, it’s typically cheaper to borrow, which can stimulate property purchases and potentially increase property prices. In contrast, higher rates can slow down the property market.

Fixed vs. Variable Rates: When remortgaging, you can often choose between a fixed-rate mortgage, where the interest rate remains the same for a set period, or a variable rate mortgage, where the interest rate can change. The choice between these can depend on the current interest rates and expectations of how they might change in the future.

Cost of the second property: If you’re using the remortgage to buy another property, the interest rate on the mortgage for that property will also significantly impact its affordability and the potential return on investment, particularly if it’s a rental property.

How do I remortgage one house to buy another in 7 steps?

Remortgaging one house to buy another, also known as equity release, is a common strategy used by homeowners who want to expand their property portfolio. Here’s a step-by-step process for how you can do it:

Evaluate your equity: Firstly, you need to determine how much equity you have in your current property. Equity is the difference between the market value of your property and the amount you still owe on your mortgage. You can generally borrow against this equity, up to a certain limit.

Consult with a mortgage advisor: A mortgage broker or financial advisor can help you understand your options, find the best deals, and guide you through the process. They can also help you determine how much you can afford to borrow without over stretching your finances.

Property valuation: You’ll need to get your current property valued. This will give you an updated understanding of its market value, which is important for determining how much equity you have. Your lender will usually arrange this.

Apply for the remortgage: Once you know how much you can afford to borrow, you can apply for the remortgage. Your lender will review your income, credit history, and the value of your property to determine whether they’re willing to lend to you. They’ll also decide on the terms of the loan, including the interest rate and the repayment period.

Legal process: If your application is approved, you’ll go through the legal process to complete the remortgage. This will involve a conveyancing solicitor, who will handle the legal aspects of the remortgage.

Completion: Once the remortgage is complete, you’ll receive the additional funds that you’ve borrowed against your equity. You can then use these funds as the deposit on the new property.
Apply for a Mortgage on the New Property: Once you have the deposit from the remortgage, you can apply for a mortgage on the new property.

In summary

Remortgaging to buy another property can be a strategic move, providing a pathway to grow your property portfolio, secure a holiday home, or invest in real estate. By leveraging the equity in your current home, you can fund a significant portion, if not all, of the deposit required for the new purchase.

However, it’s crucial to understand that, while this approach may unlock new opportunities, it also carries additional financial responsibilities and potential risks. It’s important to ensure that you are comfortable with higher monthly repayments and are prepared for any fluctuations in property values or interest rates.

This guide on “How to remortgage to buy another property” has aimed to shed light on the process, from understanding your equity to successfully securing a remortgage. But this is just a starting point. Every individual’s financial situation is unique, and therefore it’s advisable to seek professional advice tailored to your circumstances.

Whether you’re an experienced landlord looking to expand your portfolio or a homeowner dreaming of a holiday home, remortgaging could be a valuable tool to realise your property goals. Remember, the key to successful property investment lies in thorough research, careful financial planning, and well-informed decision-making.

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