Remortgaging to buy another property

Key takeaways

If you’re thinking of remortgaging to buy another property, our guide explains how it works, so that you can make an informed decision about your future.

If you're considering remortgaging, you can find out more about our remortgage conveyancing service and how we can help with the legal process.

In this article:

Can you remortgage to buy another property?

Yes, you can remortgage to purchase another property. Lenders widely accept using the equity built up in your current home as a deposit for an additional property, such as a buy-to-let investment, second home, holiday let, or commercial real estate. It can also form part of a let-to-buy strategy, where you let out your current home and purchase a new primary residence.

To approve this type of remortgage, lenders will assess:

If you are unsure, we suggest that you speak to a mortgage adviser to see if you are eligible, or read our guide which explains how remortgaging works.

How does releasing equity to buy a second home work?

Equity is the money you own in your property — what you've paid off your mortgage plus any increase in home value. When you remortgage, you can release this equity by borrowing more than you currently owe. This can go towards a deposit on a second home, or, if it’s enough, to buy outright.

Here's how it works:

Let's say you bought a house for £200,000 and borrowed £160,000. You initially own £40,000 of it (your equity).

Fast forward five years. Your house is now worth £230,000 and you owe a remaining £140,000 on your mortgage. The difference between these numbers is £90,000, which is what you now own in equity.

When you remortgage, instead of keeping your loan at £140,000, you increase it to £170,000. That £170,000 pays off the £140,000 you owe, leaving you with £30,000 in cash (released equity).

You still own £60,000 in equity, which is locked in the home. (£90,000 - £30,000 cash)

You use that £30,000 as a deposit on a second property, then take out a separate mortgage for the rest.

Lenders will check if you can afford both payments. You'll also pay conveyancing fees for both the remortgage and the second property purchase, so budget accordingly.

What are the options for remortgaging to buy a second home?

Instead of saving up cash for a deposit on a second home, you are releasing the cash value locked inside your current house as your down payment.

Because you are balancing the finances of two separate properties, lenders will look at your application entirely differently than a standard remortgage. You have three main ways to structure this type of financing:

Taking equity out of your house to buy another property

With every month that you pay towards your mortgage, you are building up equity in your home by reducing how much you owe. As the equity in your home increases, so does the amount you can release. This equity can often be used as a deposit for a second property when remortgaging.

If you are unsure about how much equity you might have built up in your home, you can get a valuation and just deduct your outstanding mortgage balance. A mortgage adviser will be able to help you with this calculation.

Understanding the costs of remortgaging and multi-property financing

Releasing equity to buy an additional home involves a much more expensive set of fees than standard remortgaging because you are executing two transactions at once. You must budget for:

Is it a good idea to remortgage to buy another property?

When remortgaging your current home to buy another property, your monthly repayments are likely to be significantly larger than they were – you will have a second mortgage to repay.

We advise that you speak to a mortgage adviser to make sure it makes financial sense. They’ll go through some affordability checks with you, including a credit check and how much you could potentially borrow. They will also discuss with you whether you can afford to pay the higher repayments on your current wage, as failure to do so may result in loss of both properties.

You can also find more helpful information in our article 'What is remortgaging and how does remortgaging work?'

Risks to consider

Remortgaging to buy another property comes with certain risks. Taking on a larger mortgage increases your financial obligations, which can impact your financial stability. If interest rates rise, variable rates can lead to higher repayments, potentially straining your budget. Changes in the property market could affect the value of both your current home and the new property, which is something to bear in mind if you plan to sell in the future.

There's also the potential risk of repossession – if you're unable to keep up with the higher repayments, you could risk losing both homes. Before proceeding with remortgaging, you need to carefully weigh these risks against the potential benefits.

A mortgage adviser can help you assess these risks and explore alternatives before you commit.

Remortgaging to buy a second home when you are self-employed?

Being self-employed doesn’t prevent you from releasing equity for a second home, but it's more complex. Lenders need to prove your income can support two mortgages at once. You'll need accounts from the last two years, and they'll assess your affordability based on whether you can cover both payments. Your mortgage adviser can help you find lenders who understand self-employed income and are willing to lend in this scenario.

Can you remortgage to buy another home if you have a poor credit rating?

It's harder, but not impossible. Lenders have to assess your risk across two properties and two mortgages, so they'll be cautious. You'll likely need more equity in your first home to release, or a larger deposit for the second property to offset the credit concerns.

Specialist lenders do work with poor credit, but they're rarer for dual-mortgage scenarios. Speak to a mortgage adviser — they can assess whether lenders will consider you and what terms they might offer.

How to remortgage a buy-to-let property to expand your investment portfolio

Many landlords use remortgaging as a way to grow their property portfolio without selling existing investments.

The majority of landlords will have interest-only mortgages, where the capital of the property isn’t paid back until the end of the mortgage. As a result, lenders typically offer 85% mortgages if they wish to remortgage an investment, which is calculated by assessing the rental income of the property.

Lenders may wish to see signed tenancy agreements, as well as bank statements to show evidence of income for the property you wish to remortgage.

Find out more about buy-to-let and investment property options.