Borrowing more on your mortgage

There are a number of reasons to remortgage your property – perhaps because your existing mortgage has come to an end, or because you want to move on to a more competitive deal.

But you may want to remortgage so that you can borrow extra funds to help pay for something big, such as home improvements or a new car.

What is additional borrowing?

Additional borrowing means that when you remortgage you borrow more money and therefore increase the overall size of your mortgage. You can then use these extra funds to pay for home improvements or school fees, for example.

How much money can you borrow and for what?

When you go through the remortgage journey at MoneySuperMarket, you’ll be asked if you would like any additional borrowing.

If you answer ‘yes’, we’ll ask you how much you want to borrow and what you want the money for. You’ll be asked to choose from the following:

• Home improvements
• School fees
• Divorce settlement
• Debt consolidation
• Car purchase
• Other property purchase
• Other

If your additional borrowing requirements are fairly substantial – more than £15,000 – you may face greater scrutiny by lenders than if your borrowing requirements are much smaller.

But ultimately, whether your application to borrow more is accepted will depend on the lender’s affordability assessment.

What is an affordability assessment?

Since the introduction of the Mortgage Market Review in 2014, lenders have become much more rigorous with their affordability checks. This means that even without borrowing extra funds, you may find it harder to get accepted for a mortgage now than you did a few years back.

Lenders will want to be certain you can afford your mortgage before they will agree to lend you the money, and this means that as well as looking at your income, they will also closely examine your bank statements and spending habits.

What else can affect a lender’s decision?

As well as assessing how much you can afford to borrow, lenders will consider how risky your borrowing requirements are.

If you’re looking to fund home improvements, for example, lenders tend to view this as lower risk as, in theory, the value of your property should increase, making it more of an investment.

On the flipside, lenders may be more uncomfortable with the idea of you borrowing money to spend on a new car or a holiday of a lifetime – but this doesn’t automatically mean you’ll be turned down.

Opting to stick with your existing lender could increase the chances of your application being accepted as your lender will already be familiar with your financial situation and will know whether or not you are a reliable borrower. Having a good credit rating will stand you in good stead too.

Lenders will also take your loan-to-value (LTV) into account. Your LTV is what you owe on your home as a percentage of what it’s worth. So if you owe £80,000 on your mortgage and your home is worth £100,000, your LTV will be 80%.

The lower your LTV, the less risky you’ll be to a lender as you own more of your home – and the more comfortable they are likely to be with lending you the extra money.

What proof do you need when you borrow more on your mortgage?

This will depend on what you plan to use the money for and how much you are borrowing.

If you are looking to borrow a large amount (more than £15,000), you are more likely to need evidence.

Similarly, if you are looking to make significant renovations to your home, such as an extension, you will probably need to show builders’ quotes, plus planning permission.

For big home improvements, the funds could be released in stages as the building progresses, rather than given to you upfront, as they might be for a kitchen refit, for example.

What are the alternatives to additional borrowing?

Before you ask for additional funds, it’s worth considering whether there are other – perhaps cheaper - ways to borrow the money you need.

Keep in mind that borrowing more on your mortgage can work out to be far more expensive than alternatives such as using a credit card or taking out a personal loan. This is because you’re borrowing over a much longer period of time with a mortgage.

We’ve used our loan calculator to highlight some examples below:

• Borrowing £5,000 at an interest rate of 3% taken over 20 years, would cost you £1,630.88 in interest payments (that’s just on the extra borrowing)
• Yet borrowing £5,000 at an interest rate of 3% over three years (perhaps through a personal loan) would cost you £231.41 in interest payments
• Even borrowing £5,000 at an interest rate of 6% over three years would save you money as you’d pay just £463 in interest payments

So think about this carefully before making your application.

Your home may be repossessed if you do not keep up repayments on your mortgage