Releasing equity to buy another property

Are you curious about releasing equity to buy another property? Is it possible based on your current financial position? Here are a few of the things that you should know.

Releasing equity to buy another property – is it possible?

What’s better than owning one great property? Owning another. Many homeowners dream of their next property purchase – whether that’s a second home or a buy to let investment – only to be thwarted by a lack of capital. But what if you could use some of the value in your current property to fund the purchase of another?

How does releasing equity to buy another property work?

If you have owned a property – be it your own or a buy to let – for several years, it’s likely that you have built up some equity. Ostensibly you can think of equity as the value of your property, minus the amount you have left to pay off on your mortgage. For example, if your home is worth £300,000 and you have £125,000 left on the mortgage, you essentially have £175,000 of equity that you could release.

But how?

There are two main options: remortgaging or applying for a ‘second charge’.

Remortgaging

This involves taking out a new mortgage on your existing property. Essentially you must apply to borrow enough to pay off the remaining balance on your current mortgage, plus the surplus that you wish to borrow to fund your additional property purchase. Some borrowers like the simplicity of sticking with one mortgage.

Second charge mortgage

A second charge mortgage is exactly that: a second charge on your existing property. Like your current mortgage, a second charge mortgage uses your main property as security. However, the two mortgages are managed distinctly from one another, which means you will have two separate payments to make each month. The lending criteria are similar to what you will have experienced when you arranged your first mortgage. You are, however, free to approach your first mortgage provider or apply to other lenders to secure the funds necessary for your purchase.

Choosing the right product for you

As with any form of borrowing, it’s important to consider your options carefully before you commit to a specific product. That’s especially true with a loan as large as a mortgage, where your home is at risk if something unexpected happens. A small difference in interest rates or loan terms can save you many thousands of pounds. That’s why it’s always best to sit down with an independent financial adviser to discuss your options.

We can help. As independent wealth management experts we have access to the entire mortgage lending market  and we can talk you through the options that make the most sense for your personal financial circumstances. To get started, call us for an informal conversation about your circumstances. We can then arrange a telephone consultation or a face-to-face meeting at one of our offices in London or the West Country. Let’s get started. 

You may also be interested in:

>> Equity release for a second home
>> Releasing equity on a buy to let property
>> Is equity release taxable?