Can I remortgageRefinancing an existing mortgage with a new mortgage. to buy a car?
Hire purchase, personal contract purchase (PCP), an unsecured personal loan, or even a leasing arrangement (personal contract hire) – you are probably aware of all these options for raising the finance you might need to buy a car. The government-backed website Money Helper weighs up the pros and cons of each.
But thinking only slightly outside those boxes, can you borrow extra money on your mortgage for a car?
On the face of it, a remortgage for a car purchase could make a great deal of sense – provided you are up to date with your repayments, of course, have shown that you are a dependable borrower.
Why would I mortgage to finance a car?
There are probably two main reasons why you might choose to refinance your mortgage to buy a car:
Since a mortgage – and any remortgage – is a secured loan, the rate of interest is almost certainly going to be much less than that for an unsecured personal loan (a typical way of raising the funds for buying a vehicle).
- High-value or exceptional purchase
If the car you want to buy is especially high value, or a classic car, you are unlikely to secure conventional types of car finance. To raise the larger sums required or for special consideration of funding for a non-essential, lifestyle purchase of an asset that might nevertheless appreciate in value, it might be worth considering a remortgage.
Can I remortgage to buy a car?
As far as mortgage lenders are concerned, your purchase of a car is a non-essential, lifestyle purchase – in the same way as expenditure on a holiday might be, for example. Some mortgage lenders will be prepared to consider refinancing for those purposes, but others will not.
Even where a lender is prepared to consider your application for such a lifestyle purchase, however, be prepared for them to impose further restrictions or conditions on that extra borrowing. These will be designed to give the lender greater security on that advance of additional funds.
Scrutiny of your application will be greater than usual, you might find any borrowing limited by a strict loan to valueThe ratio of the mortgage amount to the value of the propert... (the ratio of additional funds requested to the value of the car you intend to buy), and the risk of your application being rejected – a rejection that could prejudice applications for further borrowing in the future. Given all of that, of course, it is imperative that you approach the most appropriate lender with the greatest likelihood of your application being granted.
Why may it be challenging to get a remortgage to purchase a car?
While some lenders might impose limits on the amount you can borrow through strict loan to value ratios, further restrictions and conditions might also be applied if you are looking to release equityThe difference between the value of the property and the amo... in your home through remortgaging:
- although classic, vintage, and veteran cars might appreciate in value if you intend to use remortgaged funds to make that investment – to sell the vehicle at a profit – some lenders will refuse that business case and reject your application;
- other lenders might also insist on further underwriting checks to confirm the security or affordability of any remortgage for this purpose; and
- if you have already repaid the mortgage on your home or it is mortgage-free (unencumbered, to use the jargon) some lenders may impose still further limits on the loan to value ratio of any remortgage.
How much equity could I release for my car purchase?
Clearly, this is where the loan to value ratio is critical – not only will it vary from one lender to another, but it will also determine how much you can borrow. Some lenders, for example, may allow total borrowing of up to between 65% and 75% of the value of your home, some might stretch to 85%, while if you are lucky, you might even find a lender prepared to offer a total loan to value amount of up to 95%.
While the loan to value ratio you are offered will vary from one lender to another, the higher ratios are more likely to be secured if you:
- are an existing borrower with that lender;
- have a healthy credit rating;
- have maintained similar personal and financial circumstances since you originally took out your mortgage – your income has remained steady, for example, and you have not fallen into poor or bad credit;
- continue in full-time employment; and
- will not have passed your retirement age when any remortgage reaches its full term.
If you are intent on maximising your chances for a successful application for a remortgage to buy a car, with the most favourable terms and conditions, and at a loan to value rate that suits you, you may want to consult an independent mortgage broker – with the expertise and experience to know which lenders offer suitable deals for borrowers wanting to remortgage their home to buy a car.
Next Steps- Remortgage to buy a Car
You may find just such a mortgage broker here at NeedingAdvice.co.uk – where we are always happy to help our clients identify those lenders most likely to offer attractive remortgage terms for those looking to finance the purchase of a car.
FAQs- Remortgage To Buy Car
Can you remortgage to buy a car?
Yes, it’s possible to remortgage to buy a car in the UK. It’s important to note though that there are certain limitations as to what type of car you can buy using the money released from your home. Mortgage lenders will also check your affordability to pay the monthly payments as lender’s criteria.
Every remortgage lender’s criteria are different for such remortgages, so it’s always good to contact a remortgage broker before starting your loan application.
Should you use your mortgage to buy a car?
It is one of the most asked questions for people living in the UK. Getting a mortgage to buy a car depends on your personal circumstances such as outstanding loan, credit cards, credit score etc.
It is always better to understand your mortgage requirements from financial advisers before starting your application with a mortgage lender.
Is it Viable to Remortgage to Buy a New Car?
The answer is yes! If you are planning to get a new car then you should consider remortgaging your current vehicle to buy a new one. This could save you thousands of pounds over the life of the vehicle. You need to make sure however that you are able to afford the repayments and that you don’t end up paying more than you would have done had you bought the car outright. It’s always better to take financial advice from a mortgage broker.
When it’s not worth remortgaging for car finance?
There are some circumstances that won’’t leave you better off by mortgaging and those are:
1) Your current mortgage deal is within its fixed term or initial rate period.
2) If this is the case then the exit fees may be higher to change.
3) It may be possible for the current lender to move you to a different product within their price range, but you won’t be able to move to another lender without incurring a fee.
4) If your circumstances have changed such as from a dual-income to a single-income household, it may affect you eligibility for a range of mortgages, including remortgage deals.
5) Those who have changed from being employed to self-employed might find it more challenging to get a mortgage with main lenders, and therefore might require a specialist mortgage lender
6) Some circumstances that affect your Credit Rating can make it difficult to obtain any finance, however, most circumstances can be cared for by using a specialist lender
7) “Mortgage brokers offer loans for people who want to buy or sell homes but don’t qualify for traditional mortgages. These loans usually require lower down payments than conventional mortgages. However, borrowers pay higher interest rates, and some lenders charge additional fees. Other remortgage-related webpages that might be of interest include Remortgage products that are available for those with bad credit, secured loans, remortgaging while on an Debt Management Plan (DMP), remortgaging for debt consolidationConsolidating multiple debts into one loan, often using the ... purposes, costs associated with remortgaging, and more.