If you're looking to expand your property portfolio or fund a holiday home, remortgaging can be an excellent way to raise the necessary funds. By unlocking the equity you've built up in your current home, you can secure the capital you need to make another property purchase a reality, without the need for a new savings plan.
How can remortgaging help?
Using a remortgage to buy another property is a popular strategy for two main reasons:
- For a second home: If you're buying a second residential property, such as a holiday home, releasing equity from your current home can provide a substantial deposit. This is a great way to use your existing assets to make your dream of a second property a reality.
- For a Buy-to-Let (BTL) property: This is a common and strategic move for property investors. By remortgaging your residential home, you can often release funds at a lower residential interest rate, which can be a much cheaper way of raising capital for a BTL deposit than a personal loan.
The financials: What to expect
When remortgaging to buy another property, there are two key financial considerations:
- Equity: Lenders will require you to have enough equity in the property you are remortgaging to cover the new loan amount and leave a specific percentage of equity remaining.
- Deposit: The deposit requirements for a second property are almost always higher than it would be for a first home. Typically, you should expect to put down a minimum of 15% to 20% of the second property's value. The higher the deposit you can provide, the better the interest rate you're likely to be offered.
For example, if the new property you are buying is worth £250,000, you will likely need to have a deposit of at least £37,500 to £50,000.
Important things to consider
While this is an attractive option, it's crucial to understand the implications of a second property purchase:
- Increased financial commitment: Your monthly repayments on your present mortgage will increase, and you will also have the payments for the new property, either a mortgage or a second residential loan.
- Lender criteria: Remortgaging your residential home to fund a second property will change your overall financial position. Lenders will perform affordability checks to ensure you can comfortably afford both properties, and the criteria for residential borrowing may differ from that of a Buy-to-Let mortgage. For example, Buy-to-Let mortgages are often interest-only.
- Stamp Duty Land Tax (SDLT): When you buy a second property, you will have to pay an additional 5% in Stamp Duty on top of the standard rates.
We're here to help
No matter what type of second property you are looking to buy, ensuring you have expert guidance is crucial. Navigating the different lender criteria, affordability checks, and financial implications can be complex.
As your brokers, our team has the knowledge to guide you through the whole process and ensure you have a complete understanding of the costs and commitments involved.
Start your mortgage journey today by booking your free initial consultation.