Do I have the option of remortgaging to buy another home?
Yes, you can. A second home you purchase for investment purposes with a buy-to let basis or for an actual reason to purchase having a second residence are typical motives that you should refinance your mortgage. There’s nothing to stop you from using the equity you amassed in your initial property shouldn’t be used buy a new.
What kinds of purchases are commonly used as second-purchases?
You’ll need to inform your mortgage adviser the reason for the second house. This will not only allow them to pick the appropriate mortgage product for youbut it’ll also be considered by lenders in determining your eligibility.
The following are the most commonly used reasons for having an additional property:
The process of becoming a landlord
A buy-to-let with interest only is a common option to start your property portfolio. A holiday let mortgage can allow you to purchase a home that is a short-term rental, and when you’re looking to move to a different property, but want to retain your existing property and let your current home out to tenants, the rent to buy program allows you to modify your mortgage’s terms to suit.
The three different types of letting procedures are financed by the remortgage process, which could be the full remortgage, or a second charge on the primary residence.
A second home purchase
It is possible that you require smaller homes located in the urban area to avoid the daily commute, or you may be looking at helping your parents age or perhaps an ideal family vacation home with your own. The purchase of a second property that has an additional mortgage could be funded through a remortgage loan on the primary home.
The purchase of a commercial property is for use in business
If you’re planning to purchase a property for your company , then an remortgage that has this in mind is likely to be considered by numerous lenders.
One mortgage one, two, or three?
If the remortgage for your first home will be substantial enough to cover the outstanding mortgage, and leave enough money to purchase an additional property at full price and you will have two mortgages and the equity repaid by the first property being your deposit on the second.
The loan-to-value ratios for your second mortgage are not likely to be as high than the first mortgage, which is why you’ll want for a deposit minimum 20% to the new home from the equity from the first.
Your mortgages could also differ in terms. If your second home is a buy-to let, as an example, the remortgage you take on the home of your family will remain a residential repayment mortgage, whereas the second home will be bought with an interest-only buy-to-let mortgage.
The options offered are:
One remortgage is a possibility if there exists enough equity your primary home to allow you to pay off any mortgage balance that is still outstanding and to purchase a second property in full, you’ll only have one loan tied to your primary property.
Two remortgages is the most typical scenario when there is enough equity in the first property to cover the first mortgage and free up funds to be used as a large deposit for a second. You’ll be left with an additional mortgage on the first property as well as a second mortgage on the new property.
Three remortgages: In these cases it is possible to request an additional charge mortgage (sometimes known as secured loan) on the first property while keeping the original mortgage on the property. The funds released by this process would be used as a deposit for the mortgage to purchase another property.
How can I refinance my home to purchase another?
The mortgage process is all about numbers. The equity in your home will be a major factor in the remortgage process and so will your income, credit standing and financial capability. Let’s take a look at them in greater detail:
Your current home equity
Equity is determined by taking the current value of your home and then subtracting the value of all loans that are secured by the property (the present mortgage). If you own a house that had a market value of £310,000, and the remaining balance of your mortgage is £208,400, then your equity will be £101,600.
Equity is usually represented in percentages. In this instance the equity percentage for you is 32.77 percent.
If you want to remortgage the property you own there are two choices: either obtain a complete refinance that will replace your initial mortgage, or you can get a second charge mortgage, which is a different loan secured to the property.
In all instances the loan-to-value (LTV) you are able to leverage against your home is between 80 or 95 percent (depending on the terms of the lender).
Based on the figures in the above example:
A complete remortgage up to 90 percent LTV will result in total funds of £279,000. The borrower would need to repay the mortgage in total (£208,400) which leaves the cash equivalent of £70,600 that could be later utilized (once all fees associated with it are paid) as a large security deposit for a second home.
Second charge loans that has an institution that is willing to extend up to 95 percent LTV in total, could give you an amount of 27.77 percent of your home’s value (your equity ), with remaining 5% of the property, which would give you that you have a total LTV for the two mortgages at 95 percent). This amounts to £86,087. The second charge does not be required to repay the mortgage that was originally financed and could be a reduction on any early repayment charges that you’re liable for.
Refraining from early repayment charges doesn’t necessarily mean that a second fee isn’t the best option and the variables that affect the terms of your deal such as interest rate, affordability and terms are all relevant when you’re looking for a refinancing. To receive a no-obligation estimate or help Why not get in touch with us?
The higher the LTV of your loan, the more flexible your options are and the higher the interest rate you could be expecting.
The amount you can borrow will depend on your income. The majority of lenders will allow an amount of 4 times your income but some will be able to offer 5x or some will stretch up to 6x.
Income isn’t just about your earnings, but. Mortgage lenders are prepared to examine your complete annual income, which could include everything from steady dividends and bonus payments as well as tax credits as well as maintenance payments and child benefits.
There is a chance to gain an impressive increase in the maximum amount you can borrow with thorough documentation of your earnings. It is essential to be aware of the source for each element of your income because mortgage lenders examine each source in a different way – for instance, some lenders will only look at the 50% of your annual bonuses.
Your budget is determined by analyzing your current earnings and subtracting your expenditures. This is crucial when considering a remortgage to buy another property or second mortgages as you’ll be taking on the burden of financial responsibility on top of your existing situation.
The mortgage lender must be responsible and want to determine if you are financially stable before they will consider increasing the amount of any mortgage they have or reviewing you for a second. Simply put, if don’t prove you can pay for the additional cost then your application is likely to be denied.
Remortgaging comes with an expense – there are the legal and agent fees to think about, but more importantly , if you’re attempting to repay your mortgage from an earlier date as part or a refinancing strategy, you are likely to be at risk of being charged for early repayment.
It is crucial to incorporate this cost into the budget and our remortgage consultants can be of assistance.
With our decades of experience, we are able to analyze your expenses in depth and recommend solutions that reduce them and help keep costs down should you be considering another round of remortgaging at a later date in the contract.
To begin to get started, why not reach us and let us know your ideas?