Can I remortgage my house to buy another property?
If you have been paying your mortgage for some time and are considering buying a second home, remortgaging might be a good option to explore. Remortgaging allows you to release equity in your current property, which can then be used towards the purchase of another property. However, before deciding to remortgage, it is important to understand how the process works and to consider important factors such as affordability and equity.
How does remortgaging work to buy another property?
Remortgaging is a common path many people take to buy a second property. When you make monthly repayments on your current mortgage, you gradually pay off more of your mortgage and build up equity in your home. As equity increases, you can remortgage and release some of the equity to put it towards buying another property. This is often a common choice for many looking to branch into the buy-to-let market as the equity you have can be put down as a deposit on a second property. However, it is important to understand that the amount of equity you can release depends on the current value of your property and the amount of mortgage you have outstanding.
Equity
With every monthly repayment you make on your current mortgage, you are gradually paying off more of your mortgage, and in the process, you’re building up the equity in your home. As the equity increases, you can remortgage and release some of the equity to put it towards other things, such as home improvements or, in this case, buying another property. Using home equity to buy another house can be an effective way to use money that would otherwise sit tied up in your property. A mortgage adviser will look at your personal and financial situation before making recommendations on how you can achieve your ultimate goal.
Affordability
Releasing equity in your house to buy another one means that your repayments would be significantly larger than they have been so far. Your mortgage adviser will go through affordability checks with you when you remortgage, but you’ll have to show that you can afford to pay these higher repayments on your current wage. Failure to meet these payments could result in the loss of both properties, so it’s important you’re honest and clear with your mortgage adviser.
Self-employed
If you have a different employment status i.e. contractor, freelancer etc. you might be concerned about going through the remortgage process. Your mortgage adviser will be able to offer their expert advice when it comes to your remortgage decision. They’ll take into consideration your whole situation, including your current income, outgoings, and clearly go through all your options so you can make an informed decision that’s right for you.
It’s important to remember that remortgaging to buy another property comes with risks, and it’s not always the right decision for everyone. It’s essential to do your research and seek expert advice to determine whether it’s the right move for you. You may also want to consider other options, such as taking out a second mortgage or bridging loan.
To find out more about remortgaging to buy a second property, you can contact a qualified mortgage adviser. They can help you understand your options and guide you through the process.
Understanding the Risks of Remortgaging for Another Property
While remortgaging to buy another property can be a smart financial move, it also comes with certain risks. One key consideration is the potential for increased financial strain, as you’ll be responsible for managing multiple loans. Interest rate fluctuations could also raise your monthly payments unexpectedly, making it harder to keep up with repayments.
Additionally, if the property market declines, you may face negative equity, where the value of your properties drops below the amount owed on the mortgages. Careful planning and financial advice are essential to mitigate these risks.
Sources: Mortgage Advice Bureau, Which?
Common questions about remortgaging to buy another property
Yes, you can remortgage your house to buy another property. This is known as a let-to-buy mortgage. You would essentially keep your current home and rent it out to tenants while using the new mortgage to purchase another property.
The amount you can borrow will depend on various factors, including your income, credit history, and the value of your current property. Lenders will typically require a minimum of a 25% deposit for a let-to-buy mortgage.
The costs associated with a let-to-buy mortgage can include arrangement fees, valuation fees, legal fees, and early repayment charges. You will also need to consider the cost of maintaining both properties, including any repairs or upgrades that may be necessary.
The main risk associated with a let-to-buy mortgage is the potential for your rental income to not cover your mortgage payments. You will also need to consider the risks associated with being a landlord, such as problem tenants or property damage.
The benefits of a let-to-buy mortgage include the potential for rental income to cover your mortgage payments, the ability to keep your current property as an investment, and the potential for capital growth in both properties.
Using a mortgage broker can be helpful when obtaining a let-to-buy mortgage. They can help you find the best deal, compare rates and terms, and guide you through the process. However, it’s important to ensure that any broker you use is regulated by the Financial Conduct Authority.
