Remortgaging to buy another property

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.

In this article:

Can you remortgage to buy another property?

Yes, you can. Remortgaging to buy another property, as a second home or a buy-to-let investment, is a common reason to remortgage. There’s nothing stopping you from using the equity you’ve built up in your current home to purchase another.

The most typical property types that are purchased from a remortgage are buy-to-let investments, second homes or holiday lets. You can also buy a let-to-buy or invest in a commercial property.

Mortgage lenders have certain criteria that you will have to meet to approve your remortgage, and the largest factor is the amount of equity you have in your current home. Other factors include:

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 remortgaging to buy another property work?

Remortgaging your home to buy another negates the need to save for a deposit, as you use the equity from your current home instead.

Financing options available

The way you finance your second property depends on the amount of equity you have and your overall financial situation. Here are some common scenarios:

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, which you can put towards other things, like home improvements or buying another property through a remortgage.

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.

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?'

Understanding the costs involved

When remortgaging, it's important to be aware of the various costs that may arise throughout the process. These can include arrangement fees charged by your new lender for setting up the mortgage, valuation fees for assessing the current value of your property, and legal fees for a solicitor or conveyancer handling the legal aspects.

If you're leaving your current mortgage deal before it ends, you might face early repayment charges. If you use a mortgage broker to find a deal, there may be broker fees you’ll need to consider. By factoring these costs into your calculations, you can understand the true cost of remortgaging and budget accurately to avoid any unexpected expenses.

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.

Remortgaging when you are self-employed?

If you are self-employed, you may be concerned about whether you will be approved to buy a second property by remortgaging your current home. The process is actually very similar, however, some lenders may require accounts from the last 3 years as part of your affordability check. Your mortgage adviser will look at your whole situation, including your incomings and outgoings, to help you make the most informed decision.

Can you buy another home if you have bad credit?

If you have bad credit, you will generally require a higher deposit or additional equity in your home if you want to remortgage. It depends on the severity of your credit issues and how recent they were; if it is a one-off or you have consistently had financial problems.

Remortgages with bad credit aren’t straight forward, however there are a number of specialist lenders that may be able to help. We recommend speaking to your mortgage adviser to guide you in the right direction.

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

Remortgaging current buy-to-let properties to purchase more is a common strategy for most landlords.

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 investment properties.

Ready to take the next step?

If you decide to take the plunge and buy that second property, don’t forget you’ll need a conveyancer to deal with the legal side of your remortgage and the purchase of the second property.

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Get a personalised conveyancing quote for your remortgage today.

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