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There are several considerations which will vary depending on what type of property you're looking to buy with the funds.
The amount of equity in your home is the value of the property minus the mortgage balance. Lenders will consider the Loan to Value (LTV) ratio to assess how much you are able to lend.
Given the right circumstances, you may be able to borrow up to 95% LTV. To provide an example, if your home is worth £300,000 and your current mortgage is £120,000, this leaves you with £180,000 equity, which is an LTV of 40%. If you were able to borrow up to 95% LTV, this would mean a maximum mortgage borrowing of £285,000, which would give you additional funds of £165,000 once you've accounted for the existing mortgage. You could then put this towards buying a new house.
One caveat to this is that with a high LTV, you can expect to pay higher rates on the mortgage of your current home. An experienced mortgage broker will be able to advise on the most cost-efficient way to mortgage both properties, taking into account the LTV and available deals for each.
The LTV you are able to borrow at will also depend on the purpose of the loan, your age and credit history. For a residential mortgage, you can borrow to a maximum of 95% compared to 85% for a buy to let and 75-80% for a holiday let mortgage.
If you're remortgaging to buy another property, you will need to demonstrate to lenders that you can afford mortgage repayments on a larger loan than you maintained previously.
The affordability assessment will vary lender by lender, and again, the purpose of the loan will make a difference. Depending on the lender and your personal circumstances, you may be able to borrow up to 6 times your salary; however, 4-5 x is more common. This means that for a salary of £50,000, you could borrow between £200,000 to £300,000. Suppose a significant part of your salary is comprised of commission or bonuses. In that case, you should be looking for a lender who will take this into their affordability calculations, as not all of them do.
If the property you're hoping to purchase is for a buy to let, affordability is based more on the property and less on your personal income. You will need to show the lender that the property is a solid investment and that the anticipated rental income is at least 125% of the value of mortgage repayments.
If you're self-employed, there are more considerations to take into account. As a general rule, the longer the history of a stable income, the better, with three years of accounts being the standard requirement. That being said, some lenders will accept as little as one year's worth of accounts, and it helps if you can demonstrate experience in a similar line of work, or contracts showing a steady income stream.
Depending on the lender, your income will be assessed differently. For company directors, a combination of salary and dividends is typical. However, some also take into account profit that is retained in the business into their calculations.
Your mortgage broker will be able to advise on the best lenders to approach in this scenario.
As long as the calculations stack up, there is no reason why you can't remortgage your home to buy another property if you're on a low income. While some lenders will require a minimum annual salary of between £15,000-£20,000, there are plenty of lenders who do not specify a minimum income requirement.
If you have credit card and loan debt when applying for a new mortgage, this may impact on the amount you can borrow.
However, as long as you meet affordability requirements, it will still be possible to obtain a new mortgage. If you have bad credit, while you may be restricted to certain borrowers, it is still possible in most situations to secure a mortgage. The age and severity of the bad credit will impact on the lender's assessment and the rate you're offered.
If you've recently started with a new employer, it should still be possible to get a mortgage. Even if you're in your probationary period, some lenders will accept your application. An experienced broker will be able to recommend the most suitable lenders in this situation. If you can demonstrate a consistent work history, this will help, and certain roles are seen as more secure than others.
If Early Repayment Charges apply on your existing mortgage, you should take these into account when deciding whether to proceed with the new purchase. Even if they do apply, it may still be worthwhile progressing; your mortgage broker will be able to help with this. In some circumstances, a homeowner loan may be more appropriate.
You may wish to buy a new property without selling your existing home. Some lenders offer let to buy mortgages, allowing you to let your current home to tenants while raising funds to buy the new property. As this is a reasonably specialist mortgage product, we would recommend engaging an experienced advisor to help.
Remortgaging existing property to release equity is a standard method used by landlords to expand their portfolio. There are buy to let lenders who will loan up to 85% LTV, with affordability based on the rental income.
You can remortgage to buy property aboard, with buying a holiday home abroad being preferable to lenders than other property investments. If remortgaging does not raise enough cash to buy the property outright, you may need a specialist mortgage for buying the overseas property.
At Teito, we are a whole of market broker with an experienced team of advisors. Our team have access to more than 100 lenders offering more than 20,000 deals and have helped many people like you to find the perfect mortgage. To get started, complete our simple online form now, and we promise to make your mortgage journey as straightforward and stress-free as possible.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.