Should I remortgage my second home?
Published 16th August 2017
Hi Pete. I currently own one fully paid for property and another that still has a mortgage on it. In order to avoid being moved to a pretty high variable rate mortgage (4.99% – the only option provided to me by my existing lender) I went to a new lender who told me that, because this property has lost value since I bought it I’m now in negative equity and there’s nothing I can do. I thought about it later that evening, that maybe I could remortgage my second property to pay some of the mortgage on the first property – is this a wise idea? Does this make sound financial sense to you or does it carry too much risk?
Property 1 = £100k mortgage, £95k value / Property 2 = £0 mortgage, £150k value.
Help appreciated, Jamie, Leicester
Thanks for your enquiry, I’d be happy to help! What you are asking is perfectly reasonable, and in fact, something we have seen a lot of in the recent financial climate – as many property owners have experienced a downturn in their house values.
Firstly, I assume you mean second property which is a place where you or a close relative resides? It may make a difference if it was a rented property, but from the info given it makes absolute sense for you to consider remortgaging your second property, as the equity in it can be used to bring the loan to value down in your mortgaged property. This is likely to then ensure you have a much better rate overall. It’s really something the lender you approached should have gone through with you, if they haven’t then they must have dropped the ball, if they have and it doesn’t fit their criteria, don’t worry – there may well be another lender out there who would consider it.
If eligible, you’d be able to remortgage your unencumbered property (often fee free), for say £50,000 and leave the remaining £45,000 on your current property. You’d then have 2 mortgages on a sub 50% Loan to value – which would make you eligible for the best rates in the market, compared to paying a that high SVR with your current lender or borrowing at a high loan to value rate with another.
The risks are that of course, if you didn’t keep up with your repayments, both properties could potentially be repossessed, but in this instance you have the equity to be able to sell one of them and settle the mortgages almost in full regardless – so the gains may outweigh the risks. The decision here ultimately lies with you and whatever you feel most comfortable doing, but certainly looking at doing it this way could reduce the interest you pay overall.
To be sure we’re passing you to a company best placed to advise however, we’d need to take a full fact find from you to establish the best way forward, so if you’d like to get in touch we can get things sorted.
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