Remortgage to buy a second home

Remortgaging is replacing your current mortgage with a new one. It’s when you switch your existing mortgage to a new one. You can remortgage with your existing lender, or a new one. 

Remortgaging doesn’t mean you’re moving house. It’s when your new mortgage is still for the existing property you own.

You can remortgage to buy any of the following second properties:

• Holiday home or second home: Somewhere else you want to live some of the time, in addition to your first home.

• Let-to-buy: Where you rent out your current home so you can buy a second property. 

• Buy-to-let: A property to rent to tenants.

• Holiday let: A property to rent out for holidays or short breaks. 

• Commercial property: A property you’ll rent to a business.

Remortgaging to buy a second home or property is all about balancing a few different numbers. There are four main things that affect remortgaging:

1. Equity

2. Your income

3. Your credit history

4. Your affordability

Equity

One of the main things that affects remortgaging is your equity. Your equity is the current value of your property minus the total value of any loans secured on it and is typically represented as a percentage.

If the equity that you’re releasing is large enough, then you can use this to buy a second home outright, but in the majority of cases, you’ll use the equity as a deposit on a second mortgage loan.

Income

Your income affects how you can remortgage too. Lenders decide how much you can borrow depending on your income. For example, most lenders will let you borrow 4x your annual income. Lenders will look at everything that constitutes your income, so not just your salary. If you’re self-employed and take company dividends, get bonuses or child care benefits – that’ll all be considered by a lender. 

Credit history 

Your credit history is also a factor. A high credit score will mean you have more options, and a poor credit score will mean you have less mortgage options. 

Affordability

Lenders decide what your affordability is by looking at your current income and outgoings.

When remortgaging to buy a second property, lenders will usually require that you place a larger deposit than usual, usually 15% to 20%. Your two mortgages may well be different types, especially if you’re purchasing the second home as a buy-to-let property and they can also both be from different lenders too.

If you haven’t paid off your initial mortgage, then your monthly repayments will be a lot higher once you have two mortgages, so always think carefully about what you’re going to be able to afford to pay back.

A lender will go through various affordability checks before approving you for a mortgage, which could make it slightly harder for you to secure your mortgage. If you’re self-employed or work as a freelancer or contractor, you might find it difficult to prove a steady source of income, which is something that a lender will need to see evidence of.

This will depend on your unique situation. How much equity you’ll need depends on how much you’ve currently got in your property.

It’ll also depend on a few other factors like the loan-to-value (LTV) of your mortgage, your age, and your credit history. The LTV is the balance of the mortgage that is secured on your home, expressed as a percentage of the value of the property. 

How much equity you’ll need to remortgage also depends on the kind of second property you want to buy. For example, the maximum LTV on a standard residential mortgage is 95%, the maximum LTV for a buy-to-let mortgage is 85% and the maximum for a holiday let mortgage is around 75-80% LTV.

Read more in our Complete Remortgaging Guide.