Buying property has become an increasingly popular way for people to invest their money. If you’re looking to purchase a second home for yourself, a buy-to-let property as a rental investment, or invest in some commercial property for your business, you’ll need to consider how you’ll fund the purchase.

Remortgaging your existing primary residence to buy another property is a common solution. But how exactly do you remortgage one house to buy another?

Can I Remortgage to Buy Another House?

It’s possible to remortgage to release equity so you can buy another property as long as you meet the remortgage criteria set by the lender. You’ll also need to ensure that refinancing your current property will raise enough funds to put down a deposit on the new property or purchase it outright. Mortgage lenders will want to make sure that you can afford to pay your new refinanced mortgage alongside any lending secured against the new property.

What Second Purchases Are Common When Remortgaging?

There are many reasons why you might remortgage to release equity so you can buy a second property.

For example:

  • To become a landlord

A buy-to-let mortgage is a popular way for people to build a property portfolio and get a return on their investment by letting the property to tenants. You can also opt to move into the new property and rent out your original house, switching the mortgage on your existing property onto a buy-to-let basis via a process called let to buy. Meanwhile, a holiday let mortgage lets you buy property for short-term lettings. You can fund all these types of rental investments through remortgaging your main property and releasing equity.

  • Buying a second home

You may want to buy a second home because you need a place in the city to avoid the hectic daily commute. Alternatively, it could be that you want a family holiday home or to be able to support your retired parents. You can finance a second property by remortgaging your main property and releasing equity to use as a deposit.

  • Buy commercial property for your business

If you want to expand your business by investing in commercial property to use as offices or warehouse space for your company, you can remortgage your primary property to raise the funds you need. 

How Do I Remortgage One House to Buy Another Property?

Remortgaging your home to buy another property works in a similar way to a normal remortgage – the main difference is you simply remortgage for more than the amount outstanding on your existing mortgage. This allows you to release equity to use as a deposit on a new property or buy it outright with no mortgage.

When remortgaging your home, the lender will assess your affordability, equity, income, loan-to-value, debts, credit rating and more. The lender will also want to look at why you wish to remortgage and consider your plan to remortgage to buy another property – e.g. are you buying a second home or a rental property? Are you going to buy the new property outright with funds raised from the remortgage or are you using these funds as a deposit and taking out another mortgage on the new property?

It's a little different for let to buy – i.e. if you’re remortgaging your existing home onto a buy-to-let basis and using the extra funds to purchase a new main residence. A buy-to-let lender will assess your application differently from a residential mortgage lender. Instead of looking at your affordability, they’ll consider the estimated rental income you could earn from the buy-to-let property.

Buying a second property after remortgaging will incur certain fees and costs, for example:

  • Stamp Duty: you pay Stamp Duty when you buy a property in the UK. Buying a second home or buy-to-let currently requires an additional 3% of Stamp Duty on top of the standard rates for a main residence
  • Mortgage fees: buy-to-let mortgages often have higher interest rate costs than residential mortgages. You may also have to pay ERCs if you remortgage before your introductory deal period ends and you may face administration costs
  • Other rental fees: if you’re planning on renting out your second property after you've remortgaged, there may be additional fees such as the cost of estate agents

How Many Mortgages Will I Have?

You may be fortunate in that remortgaging your first property gives you enough funds to cover any outstanding mortgage you have while leaving you with enough money to pay for a second property in full. However, it's likely that won't be the case and you'll end up with 2 mortgages after you've released equity from the first property to fund a deposit for the new property. These mortgages will most likely be with different lenders and will be completely separate products. They may both be residential mortgages or one may be a buy-to-let and one residential.

Buying a home

What Should You Consider Before Remortgaging to Buy Another Property?

If you’re considering remortgaging your home to buy another property, you should take the following into account:

  • The property type and what you want to use it for
  • How much equity you have in your primary property
  • Your circumstances, including your affordability and credit history

Type of Property

The type of property you intend to buy after remortgaging will determine what mortgage products you qualify for. For example:

  • Buy-to-let: where you raise money on your current home to buy a new property to rent out to tenants
  • Let-to-buy: you remortgage your current residence onto a buy-to-let basis so you can rent it out to tenants, releasing equity at the same time to use as a deposit on a second property for you to live in
  • Holiday lets: you buy another property to rent out for short periods for holidays or short breaks
  • Second homes and holiday homes: where you use the money you've raised from remortgaging to buy another property to use alongside your home but not as your main residence
  • Commercial property: you remortgage your primary property to raise funds to buy a property you’ll use for your business, such as an office or shop. If you already own a commercial property, you can refinance this to buy another property

Some mortgage lenders are also interested in the property's build type and prefer to approve loans on properties considered standard construction, such as those made from bricks and mortar. However, some mortgage lenders specialise in more unusual buildings, which may be useful to you if your new property is of non-standard construction.  Specialist, independent mortgage brokers like John Charcol will often have access to a greater breadth and volume of mortgage offers to cater for non-standard property types.

How Much Equity You Have

How much equity you can release to put towards your new property will depend on the lender's remortgage requirements and how much equity you’ve built up in your property. Whether the amount you can release is enough will depend on the value of the second property and what you can borrow on this new mortgage. The amount of equity you have is equivalent to your home's value minus your current mortgage's outstanding balance. Refinancing by remortgaging allows you to access this.

The more equity you’ve built up in your property, the more you can release to fund your new investment. Lenders will typically let you remortgage at up to 75% LTV (loan-to-value).

Your Personal Circumstances

Your particular circumstances - such as your income, employment status and credit history, will affect the remortgage deals you are eligible for. 

Income and Affordability

Lenders will also look at your income and use it to determine how much they will lend to you. As remortgaging to buy another property will give you additional debt, you'll need to show the lender you can afford repayments on 2 loans alongside the costs of running 2 households.

Credit History

Some lenders may decline your remortgage application if you have bad credit. However, others take a more flexible approach to customers with a poor credit history, especially if the issues leading to the bad credit score occurred some time ago. Credit card debt and loans are usually only considered bad credit by lenders if you've missed repayments. Owing a large amount in either type of debt can also affect your chances to remortgage, especially if a mortgage lender isn't sure if you’ll be able to keep on top of all your debt repayments and your mortgage.

How Long Does It Take to Remortgage?

The timeframe for remortgaging to buy another property varies depending on which lender you choose. The remortgaging process usually takes 6 – 8 weeks, but it can be longer than that if any issues arise within the application process.

Even though you’re remortgaging to fund the purchase of a second home, commercial property or buy-to-let property, lenders will treat your remortgage application as a new mortgage. This can include a mortgage interview, credit checks, income and affordability checks and a property valuation.

Any issues or queries that arise from the property valuation can also hold up your mortgage application. If your property's current value is below what is outstanding on your mortgage, it could delay the process, or you may have to wait until the price recovers before continuing with your application.

If you need advice on how to remortgage to buy another property, speak to one of our friendly and experienced advisers at John Charcol.

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