How does remortgaging work to buy another property?

Remortgaging your first property to buy another is a common strategy that could prove fruitful for your finances in the long run. Read our guide to discover how it works.

This strategy works well when you have built lots of equity in your first home, have a good credit score and won’t have to pay huge penalties to get out of your current mortgage.

With these things in place, it could be one of the cheapest ways to raise the deposit for a buy-to-let mortgage, or maybe even to fund a house purchase in full.

Remortgaging will increase the size of the repayments you make on your existing mortgage, and lenders will conduct affordability assessments to ensure you can afford it. They’ll also want to see evidence that your new property can cover 125% of your buy-to-let mortgage payments.

Still, these are the only major obstacles to having a brand new property in your name.

How does remortgaging to buy another property work?

  • Calculate your equity. To calculate your equity, you must discover your property’s current value and subtract your remaining mortgage debt. In order to do this, your lender will revalue your property and allow you to withdraw cash based on the equity you hold. Most lenders won’t allow anyone to withdraw more than 80% of equity.
  • Find a new property. In order to fund a deposit for a buy-to-let mortgage, you’ll need to raise 25% of your new property’s value. That means you’d need to release £50,000 of equity to buy a £200,000 house.
  • Apply for a remortgage. To make sure you can afford your new repayments, you’ll go through the same affordability and credit checks as when you first bought the house.
  • Apply for a buy-to-let mortgage. Being approved for a buy-to-let mortgage is a bit different than for residential mortgages, but our tips can help you find a great deal.

When is remortgaging not a good idea?

  • If you can raise a deposit organically. If you can save a deposit for a buy-to-let mortgage without sacrificing equity, this is likely to be your best option. After all, you won’t have to pay the fees associated with re-mortgaging, nor wait longer to become mortgage-free on your property.
  • If the remortgaging fees are huge. A lot of mortgages with introductory deals include a sizeable early repayment charge if you switch before this deal has ended. These may be enough to make you think twice about remortgaging.
  • If you don’t have a lot of equity. If you haven’t built up a lot of equity in your house, it’s likely you won’t be able to afford a deposit for a mortgage on a second property (as well as all the associated fees).
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Should I remortgage with my current mortgage provider?

There’s no guarantee that your current mortgage provider will approve the remortgage deal you’re looking for. Even if they do, it might not be the best deal on the market. It’s definitely worth shopping around for the best deal, perhaps with the assistance of an experienced mortgage broker.

Having said that, the approval process is a lot smoother with an existing mortgage provider.

As such, you might be best off finding a superior remortgage deal, then using this to haggle with your existing provider. It might be willing to drop its rate in order to keep your business.

Remortgaging with bad credit

There are specialist lenders who will allow you to remortgage even if you have a bad credit score. Some will even work with you if you have suffered defaults or other financial misdemeanours.

A large deposit, perhaps raised through significant equity in your home, can make it much easier to be approved in spite of a poor credit score. In this situation, you’ll be deemed less of a risk to a lender because you’ll be borrowing less money.

A mortgage broker has specialist knowledge of individual lenders’ eligibility criteria and will therefore be able to recommend you the best deal that’s likely to be available to you.

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

  • Agricultural mortgage

    What you need to know about getting a mortgage if you’re buying or refinancing a farm or farmland, including the factors lenders consider when you apply for one.

  • Mortgage for a pub

    Everything you need to know about taking out a mortgage to buy or refinance a pub. Find out where to get one, how to get the best deal and the factors lenders consider.

  • Mortgage for a hotel

    In-depth guide to taking out a commercial mortgage to buy or refinance a hotel. Find out how to get the best rates, factors lenders consider and what you need to apply.

  • Bridging loan vs commercial mortgage

    Find out if a bridging loan or commercial mortgage would suit you if you’re buying or refinancing commercial property and when a bridging loan can be a better option.

  • How much deposit do I need for a commercial mortgage?

    Find out how much deposit you need if you’re taking out a commercial mortgage, including the factors lenders take into account, and how to get the best deal for you.

  • Getting a 5% deposit mortgage under the government’s new guarantee scheme

    Learn more about the new government scheme that allows first-time buyers and home movers to get on the property ladder.

  • Chain break finance

    Learn everything you need to know about chain break finance – a type of bridging loan that stops you losing your dream home if the sale of your existing one falls through.

  • Fix and flip

    Read our in-depth guide to fix and flip and how this type of property investment works, including the factors you need to consider, the risks to be aware of and how to finance it.

  • Commercial bridging loan

    Everything you need to know about commercial bridging loans. We look at when they’re useful, how they work and what to be aware of before taking one out.

  • Hard money loans: Short-term finance in the UK

    Learn everything you need to know about hard money loans – also known as bridging loans. Find out how they work, what they can be used for and their benefits and downsides.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site