Re-Mortgaging to buy a second property isn’t as complicated as it may seem, the process simply involves re-mortgaging your property for more than you currently owe thus releasing equity that can then be used as a deposit to purchase the second home.
Let's look at a typical example, you purchased your home 10 years ago since then you have kept up with your repayments and the property has risen in value, let’s say you bought it for £100,000 on a 20 year term and you have been paying around 3% interest.
You would now owe approximately £57,000, during this time your property has also risen in value and is now worth £120,000, this would now leave you with £63,000 equity in your property. In these circumstances, it is now possible to re-mortgage your home for more than the £57,000 currently owed thus releasing equity that had built up in the property.
A client who wished to invest in a Buy to Let property or a holiday home could re-mortgage for say £77,000 and use the extra £20,000 as a deposit towards the next purchase.
It’s hard to state any clear advantages in this type of re-mortgage. In an ideal world, you would continue paying your existing mortgage and save up the deposit for your buy to let or holiday home thus reducing the risk of repossession if things didn’t work out the way you had planned. However if you really want to pursue investing in the buy to let market or if buying the holiday home of your dreams is high on your priority list it may be the only way for you to get the liquid cash you require.
The best thing to do is speak to a mortgage broker who can guide you through the process. Our brokers will assess your situation and find the best option for your personal circumstances
The disadvantages of this process are pretty clear by increasing the amount on your mortgage you will also be increasing the monthly repayments and the total amount of interest repayable.
You really need to do your sums and be 100% sure that you will be comfortable with the repayments on both your new increased residential mortgage and the repayments on the second property, even if it is a buy to let it would be foolish to assume that you would achieve continuous occupation be paying tenants. You must allow for void periods and be comfortable with the repayments no matter what circumstances arise.