Remortgaging your home to raise the deposit for a buy-to-let or second home is standard practice, and lenders are comfortable with it as long as the sums stack up twice: once on your own home, once on the new one. Tax depends on your personal circumstances, and this is general information rather than advice.
How the release works
You replace your current mortgage with a bigger one and take the difference in cash. Say your home is worth £350,000 with £150,000 outstanding. A remortgage at 75% loan to value raises £262,500, which clears the £150,000 and releases £112,500, enough for a 25% deposit on a £200,000 rental plus its purchase costs. Most residential lenders will accept raising capital for an onward property purchase as a stated purpose, but declare it honestly, because the application asks.
| | Amount
| | — | — | |
Current home value
|
£350,000
| |
Outstanding mortgage
|
£150,000
| |
New mortgage (75% LTV)
|
£262,500
| |
Clears existing mortgage
|
£150,000
| |
Cash released
|
£112,500
|
The affordability check runs twice
The residential lender tests whether your income supports the larger loan on your own home, with the checks on income and outgoings that MoneyHelper’s remortgaging guide describes. Then the buy-to-let lender tests the new purchase, stressing the expected rent against a notional higher rate and counting your enlarged residential mortgage among your commitments. A released deposit is still borrowed money, and both lenders treat it that way. Bigger borrowing on your home also has a running cost worth writing down: £112,500 released at 4.5% is about £5,063 a year in interest before the rental has earned anything, so the yield on the new property needs to clear it comfortably. Our guide to working out rental yield covers how to check the new purchase clears its costs, and our landlord insurance guide covers another cost worth pricing in before you commit.
The 5% surcharge waiting at the purchase
Keeping your home and buying another means the purchase is an additional property. In England and Northern Ireland, the higher rates of Stamp Duty Land Tax apply to the whole price once you own two or more homes worth £40,000 or more: 5% up to £125,000, 7% to £250,000 and 10% to £925,000, with higher bands above. On the £200,000 rental that’s £6,250 plus £5,250, so £11,500, against £1,500 at the standard rates. The return and payment are due within 14 days of completion, and your solicitor files it. Scotland and Wales run their own additional-property surcharges under LBTT and LTT, so price the right tax for the right country.
Sequence it so the money is ready
Completion on a purchase waits for cleared funds, not for a remortgage still in underwriting. Run the remortgage first and have the released cash sitting in your account before you make offers, which also makes you a stronger buyer. Remember the remortgage itself needs legal work, and factor in any early repayment charge on your current deal, which can wipe out the arithmetic if you’re mid fix: a 3% charge on a £150,000 balance is £4,500, and waiting for the fix to end is often cheaper than paying it.
Note too that the surcharge isn’t refundable in this scenario. The refund rules only help people who sell a previous main residence within three years, and a landlord keeping both properties is exactly who the higher rates are aimed at, so treat the £11,500 as a permanent cost of the investment rather than a timing issue.
The release is the easy half, and the surcharge plus the second mortgage are what decide whether the investment works. Price all of it before committing, and when you’re ready to move, compare conveyancing quotes for the remortgage and the purchase so both transactions have a solicitor lined up from day one.
FAQs
Does releasing equity through a remortgage affect how much I can borrow for the buy-to-let itself?
Yes, indirectly. The buy-to-let lender counts your enlarged residential mortgage as an existing commitment when stress-testing affordability, so a bigger release on your own home can reduce how much you're able to borrow on the new purchase, even though the released cash itself boosts your deposit.
What happens if I release more equity than I end up needing for the deposit?
You still pay interest on the full amount released, and some lenders won't let you pay chunks back early without an early repayment charge, so it's worth releasing close to what you actually need rather than a round number to be safe.
Is the 5% stamp duty surcharge different if I'm buying with someone who doesn't already own a home?
Not usually. If any buyer on the transaction already owns another property, the whole purchase is normally charged at the higher rates, even if a co-buyer is a genuine first-time buyer with no other property.
