Can I Remortgage My House to Buy Another Property?

Can I Use a Remortgage to Purchase Another Property?

Yes, it may be possible to remortgage your house to buy another property, provided you have enough equity, the borrowing is affordable and the lender is comfortable with the purpose of the funds.

This can be used to raise a deposit for a second home, buy-to-let property, holiday home, property for a family member or, in some cases, a property abroad. If you have significant equity in your current home, you may even be able to raise enough to purchase the next property outright, although this will depend on the value of your home, your existing mortgage balance and lender criteria.

Remortgaging to buy another property increases the borrowing secured against your home. The new mortgage payment must be affordable, and if you do not keep up repayments, your home could be at risk.

At Kerr & Watson, we help clients understand whether raising equity is possible, how much they may be able to borrow and which mortgage route may be most suitable.

Why Remortgage To Buy Another Property?

There are several reasons why someone may consider remortgaging their home to buy another property. Some clients want to raise a deposit for a buy-to-let investment, while others may be buying a second home, holiday home, property closer to work or a property for a family member.

The reason for borrowing matters because lenders may assess the application differently depending on whether the new property is for personal use, rental income, holiday letting or another purpose.

How Does Remortgaging To Buy Another Property Work?

Remortgaging to buy another property usually means replacing your existing mortgage with a larger mortgage and releasing some of the equity as cash.

For example, if your home is worth £500,000 and your current mortgage is £250,000, you have £250,000 of equity. A lender will not usually allow you to borrow all of that equity, but they may allow you to increase the mortgage if the loan-to-value, affordability and purpose of borrowing are acceptable.

The released funds could then be used as a deposit for another property. You may still need a separate mortgage on the new property, depending on the purchase price, deposit and whether it is being bought as a second home, buy-to-let or holiday let.

In some cases, where there is enough equity, the remortgage may raise enough to buy the next property without a mortgage on the new property. This can make you a cash buyer for the second purchase, but it also means more debt is secured against your existing home.

Remortgage, Further Advance Or Second Charge Mortgage?

There are usually three main ways to raise money against your current home.

A full remortgage means replacing your existing mortgage with a new one, either with your current lender or a new lender. This can work well if you are near the end of your current deal or can access a better overall product, but you need to consider fees, affordability and any early repayment charges.

A further advance means borrowing additional money from your existing mortgage lender while keeping your main mortgage with them. This can be simpler in some cases, although the rate on the extra borrowing may be different from your current mortgage rate.

A second charge mortgage is a separate loan secured against your home, sitting behind your existing mortgage. This may be worth considering if you have a very competitive current mortgage rate or high early repayment charges, but second charge rates can be higher and you will have another secured payment to maintain. Some lenders may allow you to release equity from a UK property to buy abroad, although they will still assess affordability and may ask questions about the overseas purchase and associated costs.

What Type Of Property Are You Buying?

The type of property you want to buy will make a big difference to the mortgage options available.

If you are buying a second residential property for your own use, such as a weekend home or a property closer to work, lenders will usually assess whether you can afford both your existing mortgage and the new property costs.

If you are buying a buy-to-let property, the lender will usually look at the expected rental income, deposit size, property type and your wider financial position. The rent may need to meet the lender’s interest cover requirements.

If you are buying a holiday let, lender criteria can be different again. Some lenders will assess projected holiday letting income, while others may want evidence of affordability from personal income.

If you are buying a property for a family member, the structure needs to be considered carefully. The lender will want to understand who will own the property, who will live there, who will be responsible for the mortgage and whether the arrangement is residential, buy-to-let or potentially regulated buy-to-let.

If you are buying a property abroad, it may be possible to release equity from a UK property to fund the purchase, but the UK lender will still assess affordability and may ask questions about the purpose of the funds. Some lenders may allow you to release equity from a UK property to buy abroad, although they will still assess affordability and may ask questions about the overseas purchase and associated costs.

What Will Lenders Check?

When you remortgage to buy another property, the lender will usually assess both the existing property and your personal financial position.

They will look at the current value of your home, your outstanding mortgage balance, the loan-to-value after raising funds, your income, existing commitments, credit history, age, mortgage term and the reason for borrowing.

The lender will also consider the ongoing costs of the second property. This may include a new mortgage payment, buildings insurance, council tax, service charges, ground rent, maintenance, letting costs or periods where the property is empty.

Even if there is enough equity in your home, the application still needs to pass affordability. This is where some borrowers are caught out, because having equity does not automatically mean a lender will agree to release it.

Stamp Duty, Tax And Other Costs

Buying another property can come with additional costs beyond the mortgage deposit.

If you are buying an additional residential property in England or Northern Ireland, higher rates of Stamp Duty Land Tax may apply. The rules can vary depending on whether you are replacing your main residence, buying a second home, purchasing a buy-to-let, buying through a limited company or buying as a non-UK resident.

There may also be tax considerations if the property is let out, used as a holiday let, sold in the future or bought through a company structure. You should take tax advice before committing to the purchase.

You should also budget for valuation fees, legal fees, mortgage arrangement fees, broker fees, insurance, maintenance, furnishing costs and any early repayment charges on your existing mortgage.

What Are The Risks Of Remortgaging To Buy Another Property?

The main risk is that you are increasing the borrowing secured against your current home. If your circumstances change or the second property does not perform as expected, you still need to maintain the mortgage payments.

There may also be a risk of paying more interest overall, especially if you increase the mortgage balance or extend the mortgage term. If you remortgage before your current deal ends, early repayment charges may apply.

For buy-to-let or holiday let purchases, rental income is not guaranteed. The property may have void periods, maintenance issues, higher insurance costs or changes in tax treatment. For second homes, you need to be comfortable with the running costs of owning more than one property.

This does not mean remortgaging to buy another property is a bad idea. It simply means the numbers need to be reviewed carefully before proceeding.

Alternatives To Remortgaging To Buy Another Property

A full remortgage is not the only way to fund another property purchase.

Depending on your circumstances, you may be able to use savings, take a further advance from your current lender, arrange a second charge mortgage, use bridging finance, sell another asset or consider a let-to-buy mortgage if you are moving out of your current home and keeping it as a rental property.

The right option will depend on your current mortgage rate, early repayment charges, affordability, tax position, timescales and whether the new property is for personal use, rental income or investment.

Is This The Same As Let-To-Buy?

Not always.

Remortgaging to buy another property usually means releasing equity from your current home to help fund a second purchase. Let-to-buy is more specific. It usually applies where you move out of your current home, let it to tenants and buy a new residential property to live in.

In a let-to-buy case, the existing property may need to be remortgaged onto a buy-to-let basis, while the new property is funded with a residential mortgage. Lenders will usually assess the expected rental income on the existing property and your affordability for the new residential mortgage.

Frequently Asked Questions About Remortgaging To Buy Another Property

Can I remortgage my house to buy another property?

Yes, it may be possible if you have enough equity, the borrowing is affordable and the lender accepts the purpose of the funds.

Can I use equity in my house as a deposit for another property?

Yes, this is one of the most common reasons for remortgaging. You may be able to release equity from your current home and use it as the deposit for another property.

Do I need a mortgage on the second property as well?

Possibly. If the released equity is only enough for the deposit, you may still need a separate mortgage on the new property. If you can release enough to buy the new property outright, you may not need a mortgage on it.

Can I remortgage to buy a buy-to-let property?

Yes, this may be possible. The lender on your existing home will assess whether you can release the funds, and the buy-to-let lender will usually assess the rental income and deposit for the new property.

Can I remortgage to buy a second home?

Yes, some borrowers remortgage to help buy a second home, holiday home or property closer to work or family. Lenders will usually assess whether both properties are affordable.

Is a second charge mortgage better than remortgaging?

It depends. A second charge mortgage may be useful if you want to keep your current mortgage deal, especially if it has a low rate or early repayment charges. However, rates can be higher and you will have two secured loans on the property.

Can I remortgage to buy a property abroad?

Potentially, yes. Some lenders may allow you to release equity from a UK property to buy abroad, although they will still assess affordability and may ask for details of the overseas purchase.

Will I pay additional stamp duty when buying another property?

You may pay higher rates of Stamp Duty Land Tax if you are buying an additional residential property in England or Northern Ireland. The exact position depends on your circumstances, so you should check this with your solicitor or tax adviser.

Conclusion

Remortgaging your house to buy another property can be a useful way to release equity, whether you are buying a second home, buy-to-let, holiday let, property for a family member or another investment property.

However, it should be planned carefully. The lender will consider how much equity you have, whether the new borrowing is affordable, the purpose of the funds, your credit profile and the ongoing costs of owning another property. You also need to think about fees, early repayment charges, stamp duty, tax, insurance and whether the second property will need its own mortgage.

The right route may be a full remortgage, further advance, second charge mortgage, let-to-buy arrangement, bridging loan or another option entirely. This will depend on your current mortgage, your future plans and the type of property you want to buy.

At Kerr & Watson, we can help you understand how much equity you may be able to release, compare suitable lenders and decide which route may be most appropriate for your circumstances.

Speak to Kerr & Watson if you are thinking about remortgaging to buy another property.