Thinking of remortgaging to buy a second property?

Here’s what you need to know.

Remortgaging your current home to buy a second property might seem challenging if you haven't been through the process before, but don’t be put off. Remortgaging is a practical way to raise money if you are looking to invest. Before you look for your second property, read our handy guide on what you should consider first.

Understand that mortgages are portable

That means you can transfer from the property you initially borrowed against to the home you’re looking to buy. If you plan to move to a similarly priced or cheaper home to live in rather than renting out, it’s a savvy step and relatively straightforward. All you’ll need to cover is the valuation of the new home. If you’re thinking of purchasing a more expensive place, you’ll probably need to borrow more making ‘porting’ a mortgage more costly. An affordability check will assess your expenses and show lenders you’re financially responsible.

What if I want to remortgage to buy a second home, in addition to the one I live in?

If you own your home outright, you can remortgage instead of taking out a new mortgage, as long as you’ve built up a bit of equity. It’s easy to work this out. If you own mortgage-free, the value of your home is your total. If you have a mortgage, the equity is your property’s value minus any remaining debt. Make sure you check for early repayment charges.

Stamp duty on a second home

As somebody buying a second home, you’ll pay 3% above the standard rates. If the property is a buy-to-let, you will pay 3% on the first £500,000 and 8% on the next £100,000.

Property value

Stamp duty rate

Second home rate

Up to £125,000

Zero

3%

The next £125,000 (from £125,001 - £250,000)

2%

5%

The next £675,000 (from £250,001 - £925,000)

5%

8%

The next £575,000 (from £925,001 - £1.5 million)

10%

13%

The remaining sum (above £1.5 million)

12%

15%

 

For more on stamp duty and rates from 1st July 2021, access our easy-to-understand guide.

Capital gains tax on a second property

CGT doesn’t apply to your main home, but it will come into play when you eventually sell your second property. The amount will depend on two things - your income tax bracket and the profit you’ll make. For high-rate and additional-rate taxpayers, the rate is 28%. The capital gains tax allowance in 2021 is £12.3k (£6,150 for trusts). This means you only pay CGT on your overall gains above the tax-free allowance.*

Fees and costs

As with the purchase of any property, you’ll be charged the usual estate agent fees, according to the type of contract you have. Other costs include an EPC - the Energy Performance Certificate required for the new property. The good news is they’re valid for ten years.

Other fees to think about if you want to remortgage to buy a second property include sales conveyancing costs, which require hiring a solicitor to complete the legal aspects. Expect to pay somewhere between £400 and £1,500. You’ll also need to pay for title deeds (usually held by the Land Registry, from £4 - £12), money-laundering checks and the typical bank transfer fee. Speak to your bank for information on their rates.

Although you need to check your options before making an informed decision, investing in a second property through remortgaging makes good financial sense for many homeowners.

*Current as of April 2021