Firstly, you'll need to know how much equity you already own.
What Value Equity do I need for a Property Investment Via Remortgage?
The calculation is simple: take the value of your property (assessed by an independent valuer, ideally), deduct the balance you have left to repay on your mortgage, and the difference is your equity.
If you are unsure of what this value will be, the remortgaging process will help to establish your equity value.
Loan to Value (LTV) is a crucial factor; since many mainstream lenders will cap the LTV they can offer. For example, if you want to remortgage and buy a second property, you can find lenders offering up to 95% LTV, although most are only accessible via an expert broker.
As an illustration:
- You own property worth £500,000 and have a balance on your mortgage of £200,000. That means you have an LTV of 40% and own £300,00 equity.
- If you want to buy a second residence, you could borrow as high as £475,000 (95% of your property value) - leaving you with £275,000 to buy a new property after you have repaid your existing mortgage.
The lower the LTV required, the more lenders you will have to choose between. You will also find that rates get higher, the higher the LTV climbs.
Other factors dictate whether you will be able to borrow up to the highest LTV value. These include:
- Your age.
- Your credit history.
- The reason for the loan.
As a rough idea, most residential mortgages will extend up to 95% as a maximum. In contrast, buy-to-let mortgages usually go up to 85%, and holiday-lets can be mortgaged up to 75% to 80% of the property value.
Affordability Criteria for Property Investment Through Remortgaging
When you decide to remortgage to buy another property, your new mortgage will be a higher value, so you must be able to demonstrate affordability.
Lenders all use a different calculation, so you should seek advice from an expert broker before making an application.
Affordability Calculations for Remortgaging to Reinvest
Each lender's calculation and eligibility policies will differ. Most mainstream providers will consider your annual income and expenses, and offer up to 4-4.5 times your income.
Others will lend as high as six times your income, depending on the circumstances.
It is also worth noting that each lender will have rules about whether they can include bonuses, dividends, overtime or commissions in that annual income calculation. Some will include 100% of all additional income, others will average it out at 50%, and others will only use your annual salary as their multiplier.
Here is an illustration of how two different lenders might approach the same application:
- You earn £35,000 per year, plus a £10,000 bonus.
- Lender A only considers 50% of your bonus and lends up to four times your annual income. They offer a maximum mortgage of £160,000.
- Lender B includes your bonus in their calculations and lends up to five times your annual income. They offer a maximum mortgage of £225,000.
This demonstrates why your choice of lender is so important - even with identical circumstances, you need to select the right provider before applying, and to ensure you get the lending you need.
Can I Remortgage to Purchase Another Home if I am Self-Employed?
Yes, although it is usually advisable to work with a specialist lender rather than a high street bank. Self-employment is more common now, and therefore more providers can accept remortgage applications.
Note that most lenders require three years of business accounts, although specialist self-employed lenders can extend an offer after one year of trading.
Others still can lend within your first year of business and will apply different income calculations to work out how much they can lend you.
Niche lenders can include business profits from self-employed business owners, as well as your salary and other income streams.
This illustration shows how lender calculations vary for self-employed applicants, and how significantly this impacts the amount you can remortgage for:
- You are a Director, and 50% shareholder, of a limited company. Net profits were £250,000; you took a £10,000 salary and £40,000 dividends, leaving the rest of the profit in the business.
- Lender A includes your salary and dividend and lends up to five times your annual income. They offer a maximum mortgage of £250,000.
- Lender B is a specialist and includes retained business profits. You are a 50% shareholder; so own £125,000 of this year’s net profit. They lend up to four times your annual income and offer a maximum mortgage of £500,000.
Can I Invest in a Second Property Through a Remortgage as a Contractor?
Yes, you can - as a contractor, it is vital to work with a broker who can structure your application for you, and apply to specialist lenders.
Our clients include:
- Self-employed contractors.
- Fixed-term employed contractors.
- Zero hours contracted workers.
- Agency staff.
- Construction Industry Scheme Workers.
As with other remortgage types, each lender will have its own criteria. Some may ask for a minimum number of years of experience, and others will happily lend to new contractors who already have experience in the same sector.
If you are on a fixed-term contract, some lenders will ask to see that the contract has been renewed at least once, and others will require a minimum contract term to be left to run before they can make an offer.
Contractor mortgage lending usually works on a day rate calculation - here is an example.
- You earn £200 per day.
- Five days per week = £1,000 weekly income.
- Forty-six working weeks per year = £46,000 annual income.
Most lenders won't assume you work 52 weeks per year, since this allows for time taken off between contracts, as well as holiday periods.
For CIS workers, you can apply for niche products designed explicitly for scheme members.
These are well worth looking for with a broker, since this type of remortgage considers your gross payslip income, rather than offering a lower remortgage based on your self-assessment tax returns or business accounts.
Can I Remortgage to Buy Another Home on Low Income?
You can remortgage on a low income, but will still need to demonstrate that you can afford the repayments.
Some lenders have a minimum income level of £15,000 - £20,000, although others have no minimum.
Do my Loans and Credit Cards Impact my Ability to Remortgage to Invest?
Yes, but having other debts doesn't mean you can’t get a remortgage. The consideration is that other outstanding debts will reduce the maximum you can borrow.
Lenders look at your income, and other debts and outgoings to calculate the maximum remortgage value.
Therefore, if you can reduce other debts before applying for your mortgage, you will usually be able to apply for more.
You can also roll up the other debts within your remortgage to pay them off entirely.
As an example:
- You earn £40,000 per year and pay £500 a month in credit card repayments.
- Lender A lends up to four times your income and will deduct your annual credit card repayments. They can lend a maximum of £136,000.
- You apply to the same lender, after having paid off that credit card debt. Therefore, your maximum mortgage is the full four times your annual salary. They can lend a maximum of £200,000.
Can I Remortgage to Purchase Another Property if I Work Part-Time?
Yes, the affordability criteria are the same, though, so you need to show that you can keep up with the monthly repayments.
What Other Income Can I Use to Support my Remortgage Application?
When remortgaging to buy a second property, you can sometimes include other income to increase the maximum amount you can borrow.
This can include:
- Bonuses
- Overtime
- Second employment
- Earnings from investments
Some lenders will place a maximum of 50% or 75% against additional income so they won't include all of it in their maximum lending calculations.
Other lenders will include benefits, such as:
- Child tax credits
- Working tax credits
- Child benefit
Can I Remortgage to Buy a New Home if I Just Started a Job?
You can - although this differs significantly between lenders.
Mainstream lenders will often consider applicants who have six or twelve months of minimum employment history. Others, with more flexible terms, can accept an application from the first day of your new job.
Specialist lenders can even consider applications if you have a new contract that hasn't started yet but will begin in the next three months.
If you don't have a longer income history and need to remortgage, give us a call on 0330 304 3040.
How do Lenders Calculate Affordability Criteria on Buy to Let and Let to Buy Remortgages?
When remortgaging to buy a rental property, or to purchase a new residential home and let your existing property out, the rental income is the main affordability criteria.
Your tax bands impact this, and lenders will need the rent to cover 125% of the mortgage repayments, on a 5.5% interest rate for a basic rate taxpayer.
If you want to remortgage to invest in a BTL property as a higher rate taxpayer, the rent will need to be 145% or 160% of the monthly mortgage payments.
As an illustration:
- You want a £200,000 mortgage to invest in a BTL property. At the 5.5% interest 'stress test rate', the monthly interest payment is £916.
- If you are a basic rate taxpayer, the rent needs to be 125% of this value or at least £1,146 per month.
- If you are a top rate taxpayer, the rent needs to be 160% of this value or at least £1,466 per month.
Each lender uses different rules and policies, so it is always critical to work with an experienced broker who can support you with understanding affordability criteria.
Can I Remortgage for a Property Investment with Bad Credit?
You can - and a lot depends on the nature of the bad credit issues, and when they occurred.
A bad credit lender will ask:
- What issues occurred.
- When they happened.
- What values were involved.
- Whether the debt has been repaid.
You might also be asked for context to demonstrate whether the issue is recurring or a one-off.
With a bad credit rating, you're likely to be offered a lower maximum LTV ratio. However, niche lenders can offer 90% or even 95% LTV depending on the circumstances.
Rates on bad credit loans are usually higher, however, if you are looking for a remortgage for property investment, give us a ring, and we will explain the best options.
Here we'll look at the most common types of bad credit issues, and how these will impact your property investment remortgage calculation:
- Late Payments or Arrears: late payments are usually one or two late remittances, whereas arrears are a more severe delay. Borrowing options depend on whether the credit was secured or unsecured, and how recently the late payments or arrears happened. High street lenders will usually require a clean credit file for at least twelve months, although specialist lenders can generally help.
- Defaults & CCJs: an increasing number of remortgage providers will consider your application. Some lenders will be happy provided any CCJs or defaults have been satisfied, and others will consider applications even when these occurred in the last six months.
- Debt Management Plans: if you are in a DMP, an experienced lender will take this as a positive sign that you have gotten your finances under control. Provided payments have been kept up to date you can secure a DMP mortgage even if it has not yet expired.
- IVAs and Bankruptcies: while there are fewer options to remortgage with serious credit issues, you can borrow up to 75% LTV provided your bankruptcy was discharged twelve months ago or more.
In any bad credit scenario, it is crucial to consult an experienced broker who can advise you on the best lenders to apply to, and which can accept your circumstances.
How Does the Property Type Impact my Investment Remortgage Application?
Mortgages are secured against the property, so a typical home or flat is usually easy to remortgage.
However, suppose you are investing in a studio apartment, ex-council property or a non-standard home, such as one with a timber frame. In that case, you will need to consult a broker to find out which lenders can support your application.
Are There Age Criteria for Remortgaging to Purchase a Second Property?
Most lenders will extend offers to applicants from 18 and above.
Some lenders have a maximum age limit, whereas others do not. This can depend on the length of the mortgage term or your age at the point of applying.
The critical criteria is affordability, so provided you can make the repayments, then the mortgage brokers team can help you find the right remortgage at any age.
Can I Remortgage with Recent Criminal Convictions?
It depends - if you have a spent conviction as defined by the Rehabilitation of Offenders Act 1974, then you don't need to disclose this, and they cannot be considered in the application process.
If you have an unspent conviction, then you will need to declare this.
Can I Remortgage for a New Property Purchase with Early Repayment Penalties?
You can, but remember that you will have to pay those penalties if you choose to remortgage and switch to a new provider.
Often, it is more cost-effective to wait until the early repayment period has passed. However, you might decide the investment is worth the extra cost.
If you need support calculating early repayment charges, or assessing a cost-benefit scenario, get in touch with the Revolution Brokers team.
Can I Raise Cash for a 2nd Property Purchase with a Second Charge Loan?
You can - a secured loan can, in some circumstances, be a better solution than remortgaging your existing property.
Please consult an expert broker to ensure you understand the costs, pros and cons in doing so.
Can I Remortgage and Invest in a New Property with Cash?
Yes, if you can remortgage your existing home and release sufficient capital to buy a second property outright, then you can do so.
In some cases, it is cheaper to take out the maximum borrowing on your existing property, rather than remortgaging or applying for a second form of financing.
If you can't raise enough cash to finance the second property purchase, you can apply for a second mortgage. This could be a BTL mortgage if you will be renting out the property, and there are other options for second residences and holiday homes.
How Can I Get a Remortgage if I am Moving Home?
If you want to move, but want to keep your property and rent it out, you can do so.
You can remortgage your existing home as a let to buy investment, and therefore raise funds to purchase or pay a deposit towards your new property.
Another option is to port your mortgage over to your new home.
Can I Remortgage a Buy-to-Let to Buy Another Portfolio Property?
Many landlords decide to remortgage one rental property and use the capital raised to expand their portfolio.
Buy to let mortgages are available up to 85% LTV, and the rental income will dictate the affordability criteria.
Can I Use a UK Remortgage to Raise Finance to Buy an Overseas Property?
If you're looking to remortgage to purchase a holiday home abroad, you can do so, and the criteria are usually similar to those for remortgaging to buy a new UK property.
You'll likely need to raise enough cash from the remortgage to buy the holiday home in cash. If that isn't the case, give us a call to learn about specialist mortgages for overseas holiday homes.
Can I Remortgage an Inherited Property?
Provided the probate has completed, and you are the legal owner of the property, there is no reason you can't apply for a remortgage.
Some lenders will stipulate that you need to have owned the property for at least six to twelve months, but some will consider applications much sooner.
If you are a joint owner, then all beneficiaries must agree to the remortgage, unless you use the remortgage to buy out their proportion.
We negotiate remortgages for property investment across any number of scenarios and work with a vast network of specialist lenders who can consider circumstances where mainstream lenders are unable to help.
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