Can I Use a Remortgage to Purchase Another Property?
Have you been considering the prospect of owning another property? Whether it’s for investment purposes, a holiday retreat, or supporting a family member, remortgaging your current home can be an effective strategy to finance your next property purchase.
At Kerr & Watson, we specialise in providing tailored mortgage and protection advice, helping you navigate the complexities of remortgaging to achieve your property goals.
What Is Remortgaging?
Remortgaging involves taking out a new mortgage on your existing property, either to replace your current mortgage or to borrow additional funds. This can be particularly useful if you’ve built up significant equity in your home, allowing you to access those funds to purchase another property. It is worth noting, this should only be done after serious thought and taking advice from a professional.
Why Remortgage to Buy Another Property?
There are several reasons why you might consider remortgaging your house to buy another property:
- Investment Purposes: Buy-to-let properties can provide a steady income stream and potential for capital growth for the right investors.
- Second Home: Having a second home can serve as a holiday retreat or reduce the need for daily commutes if located closer to work, such as a pied-a-terre.
- Supporting Family: You might want to help a family member by buying a property for them to live in.
Types of Second Properties
Buy-to-Let
Investing in a buy-to-let property involves purchasing a home to rent out to tenants. This typically requires a buy-to-let mortgage, which may have different terms compared to your residential mortgage, such as a larger deposit and higher interest rates. The amount you can borrow is dependent on the rent that the property will generate.
Holiday Home
A holiday home provides a getaway for relaxation and can also be rented out when not in use to generate additional income. It’s important to consider the costs of maintaining two properties and the seasonal nature of holiday rentals. Some holiday home mortgages allow to use the property for a number of weeks per year in addition to renting it out.
Second Residential Property
A second residential property can be used as a part-time residence, often for convenience in another location. For example, you might want a city apartment such as a pied-a-terre to avoid long commutes or a home near elderly parents to provide better support.
Commercial Property
If you’re looking to invest in a property for your business, a commercial mortgage will be necessary. This type of investment can offer high returns but also involves greater risks and responsibilities as they can be harder to sell or may require more maintenance depending on the building.
Find out Your Options
How to Remortgage One House to Buy Another
Assessing Your Equity
Equity is the portion of your property that you own outright, calculated by subtracting the outstanding mortgage balance from the property’s current market value. For example, if your home is worth £300,000 and you owe £200,000 on your mortgage, your equity is £100,000. Most lenders allow you to remortgage up to 80-90% of your property’s value depending on your income and use of the money.
Income and Affordability
Lenders will assess your income and affordability to ensure you can manage additional mortgage payments. This includes considering all sources of income and existing financial commitments. Typically, lenders offer mortgages up to four to five times your annual income depending on circumstances. You can utilise our residential calculators to get an estimate of your affordability.
Credit Status
Your credit history will play a significant role in the remortgaging process. A good credit score can help secure better mortgage rates, while a poor credit history may limit your options. It’s advisable to check your credit report and address any issues before applying using websites such as CheckMyFile.
Types of Remortgages
Full Remortgage
A full remortgage involves paying off your existing mortgage and taking out a new one, sometimes with better terms or a lower interest rate. This option can free up significant funds if your property’s value has increased.
Second Charge Mortgage
A second charge mortgage is an additional loan secured against your property, leaving your existing mortgage intact. This can be a good option if you have a favourable rate on your current mortgage and wish to avoid early repayment charges.
Steps to Remortgage for a Second Property
- Evaluate Your Financial Situation: Determine how much equity you have and assess your overall financial health.
- Research Mortgage Products: Look for mortgage deals that suit your needs, considering both residential and buy-to-let options.
- Consult with a Mortgage Advisor: Seek expert advice to find the best deals and ensure you’re making informed decisions.
- Apply for the Remortgage: Submit your application, including all necessary documentation on income, outgoings, and credit status.
- Use Released Equity: Once approved, use the released equity as a deposit for your second property or to fully fund it.
Conclusion
Remortgaging your house to buy another property can be a strategic move to expand your property portfolio, secure a holiday home, or support family members.
However, it involves careful planning and a thorough understanding of your financial situation.
At Kerr & Watson, we provide expert mortgage and protection advice to help you navigate the complexities of remortgaging. Contact us today for a no-obligation consultation and let us assist you in making informed decisions about your property investments.
Why Choose Kerr & Watson?
At Kerr & Watson, we understand the intricacies of remortgaging and property investments. Our experienced advisors are dedicated to providing personalised advice tailored to your unique circumstances. We work with a wide range of lenders to find the best mortgage products that suit your needs.
Ready to explore your options? Contact us today and take the first step towards purchasing your next property.
