Can you remortgage to buy another property?

Can I remortgage to buy another house?

It is possible to remortgage to buy another house in the UK. Remortgaging essentially means replacing your existing mortgage with a new one, often with a different lender or on new terms. 

People usually consider remortgaging to secure a lower interest rate, shorten their mortgage term, or borrow more money against their property.

Remortgaging to buy another property requires sufficient equity in your current home, which means the value of your property is significantly higher than the amount you still owe on your mortgage. 

The lender will assess your affordability, considering your income, expenses, and credit history, to determine if you can manage both mortgage repayments. While there isn't a strict age limit for remortgaging, lenders may have their own criteria based on age and risk.

What are the risks of remortgaging to buy another property?

Even if you can remortgage to buy another property, you should know the risks involved. 

These include:

• Increased debt: You'll take on a larger mortgage, which means higher monthly repayments.
• Higher interest rates: While you might secure a good rate initially, remember that interest rates can fluctuate.
• Early repayment charge: If you remortgage before your current deal ends, your existing lender might impose an early repayment charge.
• House price fluctuations: Property values can go down as well as up.
• Impact on your credit score: Multiple mortgage applications and a higher level of borrowing could potentially affect your credit score.

What are the different types of properties you can buy when remortgaging to buy another property?

When you remortgage to buy another property, the type of property you intend to buy plays a crucial role in the lender's decision-making process.

It influences the products you qualify for, the interest rates offered, and the loan-to-value (LTV) ratio they're willing to provide. 

The following are some common property types you could buy:

• Residential property: This is simply another home for you and your family to live in.
• Holiday home: A property you plan to use for personal vacations and holidays.
• Let-to-buy: Here, you’ll rent out your current home and buy a new one to live in.
• Buy-to-let: This involves purchasing a property specifically to rent it out to tenants. 

Remortgaging to buy another house: what’s the process?

Remortgaging to buy another property is often a good way to climb the property ladder or expand your investment portfolio, but you’ll need to understand the process. 

If you’re interested in how to remortgage to buy another property, you’ll have to determine how much your home is worth now and how much you still owe on your mortgage. Your income, spending habits, and credit history are also determining factors. 

A mortgage broker can offer valuable assistance as they can help you navigate your options.

Additionally, you'll need a solicitor to handle the legal side of the remortgage and purchase of your new property. The exact timeline varies, but the entire process typically takes between four and eight weeks.

How to figure out how much you need to remortgage

If you want to remortgage to buy another house, you should know how to calculate your equity and determine what your costs will be.

For example, let’s say your current home is worth £300,000, and you have an outstanding mortgage of £100,000. This means you have £200,000 in equity. You want to buy a second property for £250,000.

To calculate how much you need to remortgage, take the following into account:

• Deposit for the new property: You may need a 20% deposit, which is £50,000.
• Remaining funds needed: You'll need to borrow £200,000 to cover the rest of the purchase price.
• Remortgage amount: To release the £50,000 deposit and borrow the additional £200,000, you'd need to remortgage your existing property for £250,000.

The average mortgage rate in the UK fluctuates.

According to Forbes, as of October 2024, the average rate for a two-year fixed-rate mortgage is around 6.27%, while a five-year fixed-rate mortgage averages around 5.84%.

To better understand how much you could borrow, use a mortgage affordability calculator.

How to keep the price of remortgaging to buy another property down

So, how do you remortgage to buy another property without going bankrupt?

To keep costs down, focus on improving your credit score for better interest rates, increasing your equity for a more favourable deal, and comparing mortgage offers to find the most competitive rates and fees. 

Although longer mortgage terms mean more interest paid overall, they can result in lower monthly payments, easing your financial burden.

Be mindful of the various fees associated with remortgaging, such as arrangement, valuation, and legal fees, as these can add up significantly.

What are the alternatives to remortgaging to buy another property?

If you want an alternative to how to remortgage to buy another property, consider the following:

• Savings: This can be the most straightforward option if you have enough savings to cover the deposit and associated costs.
• Personal loan: A personal loan can be a viable option for smaller purchases or when you need a shorter-term loan.
• Further advance: If you're happy with your current mortgage deal, you could ask your existing lender for a further advance.
• Second charge mortgage: This involves taking out a second mortgage on your property, secured against the remaining equity. 
• Home equity loan: Similar to a second charge mortgage, a home equity loan allows you to borrow against your property's equity.

Find expert financial advice

Remortgaging to buy another property is a viable option for many.

However, it’s critical you take the time to assess your finances and ensure you can afford your financial obligations. There are alternatives to remortgaging available, but these depend on your circumstances and savings.

Find a qualified financial adviser or mortgage broker via Unbiased for expert advice about property investment and ensure you set yourself up for a financially successful future.