If this sounds familiar, you might now be considering what your next move could be. Does the prospect of owning a second house appeal to you? Daydreams of holiday homes, or perhaps a nice property investment? Well, now could be the perfect time to explore your options and see if this dream could actually become a reality.
How does refinancing work to buy another property?
Although you might not have the money saved up to put down a deposit on a second home right now, there are other ways you can still achieve this. Refinancing is a common path many people take in order to buy a second property, but first, it’s good to understand how this works.
With every monthly repayment you make, you are gradually shaving off more and more of your home loan, and in the process, you’re building up the equity in your home. As the equity increases, you can refinance and release some of the equity to put it towards other things, such as home improvements or, in this case, buying another property.
This is often a common choice for many looking to branch into the property investment market, as the equity you have can be put down as a deposit on a second property. To find out more about choosing the right buy-to-let mortgage for you, see our article ‘should landlords choose a repayment or interest only property investment home loan?’
Using home equity to buy another house can be an effective way to use money that would otherwise sit tied up in your property. A mortgage adviser will look at your personal and financial situation before making recommendations on how you can achieve your ultimate goal.
Releasing equity in your house to buy another property means that your repayments would be significantly larger than they have been so far. Your mortgage broker will go through affordability checks with you when you refinance but you’ll have to show that you can afford to pay these higher repayments on your current wage. Failure to meet these payments could result in the loss of both properties, so it’s important you’re honest and clear with your mortgage broker.
If you have a different employment status i.e. contractor, freelancer etc. you might be concerned about going through the refinance process. Your mortgage adviser will again be able to offer their expert advice when it comes to your refinance decision. They'll take into consideration your whole situation, including your current income, outgoings, and clearly go through all your options so you can make an informed decision that’s right for you.
To find out more about refinancing to buy a second property, please get in touch and we can put you in contact with a qualified mortgage adviser local to you. In the meantime, why not see how much you might be able to borrow using our initial search.