There are many great reasons to get a second home, but finding enough capital can be difficult if you’re unable to save due to your current mortgage repayments. One possible solution is to release the equity from your home.
But if you have equity in your home, can you use it to buy a second home? And even if you can, is doing so a good idea? Here we’ll give you all the information you need to make an informed decision. Let’s start by looking at exactly what remortgaging is.
What is Remortgaging?
A remortgage is when you replace your existing mortgage with a new mortgage. There are many reasons to do this, with perhaps the most common being to get a better interest rate, and therefore a lower monthly payment.
However, your new mortgage can be for a greater amount than your previous mortgage. For example, you have a home worth £400,000 with £150,000 left on the mortgage. Here you could get a new mortgage for £350,000 and be left with £200,000 in cash.
You can release this equity for such reasons as consolidating debt, starting a business, or building an extension. Another such reason is to buy a second home.
Can You Remortgage to Buy a Second Home?
There are no rules or laws against using a remortgage to buy a second home, so yes, you can. If you are confident in paying for and maintaining a second home, then this can be a sensible way to put your equity to good use.
Whether you should remortgage to buy a second home is another matter. Unless you can buy the second home outright with your equity, then you’ll need to pay for a second mortgage. This can be a significant financial burden, and you’ll need to prove to your lender this is affordable.
Of course, the reason many people buy a second home is to let it out. Here you’ll be hoping that the tenant can, at least, cover the cost of the mortgage payments. Even so, you’ll want to ensure you have enough affordability to cover any periods where the property is empty.
There are other considerations too, such as your credit score. Your lender will consider all these factors, including the home’s equity, and advise you whether or not buying a second home is a good idea.
Why Would You Remortgage to Buy a Second Home?
Investing in property has long been a secure way to safeguard your future. Property prices consistently rise over time. When you add this to the reduction of your mortgage each month, it means your net worth can rise more quickly than owning one property alone.
There are some great reasons to buy a second home, but the most common is to let it out. Here the idea is that someone else is effectively paying the mortgage and increasing the equity in your asset.
Gathering the deposit to buy a home is becoming increasingly difficult, and even if you’re able to save, it can take a long time to have enough capital. As a result, utilising your equity can feel like a shortcut to expanding your property portfolio.
Of course, there are other reasons to buy a second home other than looking to rent it out. For example, you may want to have a holiday home, or perhaps you want to buy your child a home. Whatever your reason, remortgaging for a second home can be a great idea so long as it’s affordable.
Things To Consider Before Remortgaging to Buy a Second Home
We have mentioned it a few times, but the number one aspect to consider is affordability. If your loan-to-value ratio (the difference between your mortgage and property value) is high, it’s perhaps too much of a risk.
It’s also wise to think about your debt burden. Many dream of a mortgage-free future but with remortgaging, you are going the other way. You are dramatically increasing your debt level and the associated risk that comes with it.
Of course, you’ll be increasing your net worth too, which is why it can be a risk worth taking. With enough equity, you can easily mitigate any risk.
Before remortgaging, you should also complete plenty of research. For example, if you are planning to let, then you’ll want to ensure you’re buying an easily rentable property in an area of high demand. Also, you’ll want the market rental value to be higher than the monthly mortgage payment.
The worst case scenario is that you buy a second home that you’re unable to rent, and you’re left with two mortgages that you struggle to pay. As long as you are prepared and can cope with this worst-case scenario, then remortgaging to buy a second home can be a great idea.
Sell your property with WeBuyAnyHome
WeBuyAnyHome are chain-free cash house buyers who can purchase your property up-front and quickly, without hassle or stress. You are in the perfect place to sell your house fast.
Using our own funds, we will purchase your property at a set price, by a date of your choosing, fully managed from beginning to end.
Any location, any condition, we buy any house. We can provide you with an offer for your UK property – Cardiff to Clyde, Durham to Dover. Our specialist team have helped assist thousands of people to a quick and stress-free house sale.
Fill in our enquiry form below if you are interested in getting a cash offer for your house.
