Remortgaging to Buy a Car: A Comprehensive Guide

In the ever-evolving financial landscape of the United Kingdom, homeowners are continually seeking innovative ways to leverage their assets. One such method that has gained popularity is remortgaging to buy a car. This article aims to shed light on this topic, answering key questions like “Can you remortgageRefinancing an existing mortgage with a new mortgage. to buy a car?” and providing insights into the process of remortgaging for this purpose.

The UK remortgage market has seen significant changes recently. According to the Office for National Statistics (ONS), more than 1.4 million households face the prospect of interest rate rises when they renew their fixed-rate mortgages in 2023. In the first quarter of 2023 alone, around 353,000 fixed-rate mortgages were up for renewal.

The Financial Conduct Authority (FCA) reported that remortgages over Q1 2023 totalled £17.5 billion, over £10 billion less than this time last year.

The remortgage market typically accounts for around 20-50% of new commitments in any quarter.

On the other hand, the car loan market in the UK is also substantial. In 2021, 2.1 million cars were financed. With the average new car buyer financing an average of £25,000 per car in 2022, it’s clear that many UK residents are looking for ways to finance their vehicle purchases.

Given these statistics, it’s unsurprising that many homeowners consider remortgaging their homes to buy a car. This approach can offer several benefits, including potentially lower interest rates and the convenience of consolidating debts. However, it’s essential to fully understand the implications, as remortgaging also comes with risks and costs.

Stay tuned as we dive deeper into the topic of remortgaging to buy a car, providing you with the latest information and expert advice to help you make an informed decision.

Post Topics

Purpose of using a remortgage to buy a car

Can I remortgage to buy a car?

Why would I mortgage to finance a car?

Why may it be challenging to get a remortgage to purchase a car?

How Much Equity Can I Release to Purchase a Car?

Ways to improve credit score before remortgaging

Next Steps- Remortgage to buy a Car

FAQs- Remortgage To Buy Car

Purpose of using a remortgage to buy a car

Remortgaging has become a popular method for individuals to raise funds for various purposes, including buying a car. This financial strategy involves borrowing against the equityThe difference between the value of the property and the amo... in one’s property by refinancing their mortgage. By doing so, individuals can access a lump sum of cash that can be used to purchase a car. The purpose of using a remortgage for this specific purpose is to provide an alternative to conventional car financing options, offering potentially lower interest rates and longer repayment terms.

This allows individuals to spread their car purchase costs over longer while making manageable monthly payments. Additionally, remortgaging to buy a car allows homeowners to release cash tied up in their property and capitalise on any potential property value increases.

However, it is essential to consider the long-term implications of remortgaging and carefully evaluate the terms and conditions before proceeding. In this article, we will explore the purpose and benefits of using a remortgage to buy a car while highlighting some important considerations individuals should consider to make an informed decision.

Can I remortgage 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:

• Low rate of interest

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 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 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.

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 equity 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 still impose further limits on the loan-to-value ratio of any remortgage.

How Much Equity Can I Release to Purchase a Car?

The amount of equity you can release for your car purchase is largely determined by the loan-to-value (LTV) ratio, which varies from one lender to another. This ratio is pivotal as it determines the maximum amount you can borrow against the value of your home. Some lenders may permit total borrowing of up to 65% to 75% of your home’s value, while others might extend this to 85%. In some fortunate instances, you might find a lender willing to offer a total LTV of up to 95%.

The LTV ratio offered to you will depend on several factors and higher ratios are typically secured if you:

• Are an existing borrower with that lender;
• Maintain a healthy credit rating;
• Have kept consistent personal and financial circumstances since you initially took out your mortgage – for instance, your income has remained stable, and you have not slipped into poor or bad credit;
• Continue in full-time employment and
• Will not have reached your retirement age when any remortgage reaches its full term.

If you’re keen on maximising your chances of a successful remortgage application to buy a car with favourable terms and conditions and an LTV rate that suits you, it may be beneficial to consult an independent mortgage broker. They possess the expertise and experience to identify which lenders offer suitable deals for borrowers intending to remortgage their homes to buy cars.

Ways to improve credit score before remortgaging

Improving one’s credit score is crucial before remortgaging, as it can significantly impact the interest rate and loan terms offered by lenders. By following key steps, homeowners can enhance their creditworthiness and secure better remortgaging options.

Firstly, reviewing credit reports for errors is essential. Obtaining a free copy of the credit report from major credit bureaus enables homeowners to identify any mistakes or inaccuracies that might be negatively affecting their credit score. Disputing these errors promptly can increase the credit score.

Paying bills on time is another crucial factor in improving credit scores. Late or missed payments can have a substantial impact on creditworthiness. By ensuring all bills, including credit cards, loans, and utilities, are paid promptly, homeowners can demonstrate their reliability to lenders.

Keeping credit card balancesOutstanding credit card balances, which may affect a borrowe... low is also vital. High credit card utilisation can negatively influence credit scores. It is advisable to maintain credit card balances below 30% of the credit limit to boost the credit score.

It is equally important to avoid the temptation to open new credit accounts. Each new credit inquiry can temporarily lower a credit score. Therefore, refraining from applying for new credit cards or loans before remortgaging is advised.

Lastly, homeowners should consider credit counselling if necessary. Seeking assistance from reputable credit counselling agencies can provide personalized advice on how to improve credit scores. These professionals can offer tailored strategies and plans to help homeowners enhance their creditworthiness effectively.

By reviewing credit reports, paying bills promptly, keeping credit card balances low, avoiding new credit accounts, and seeking credit counselling if needed, homeowners can significantly improve their credit scores before remortgaging. This ultimately increases their chances of securing favourable loan terms and interest rates.

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 lenders most likely to offer attractive remortgage terms for those looking to finance a car purchase.

FAQs- Remortgage To Buy Car

How Does Monthly Repayment Impact Remortgaging to Buy a Car?

When considering remortgaging to purchase a vehicle, it’s crucial to understand how the monthly repayment will fit into your budget. The mortgage provider will conduct an affordability check to ensure you can manage the new mortgage payments along with your other financial commitments.

What’s the Role of Credit History in a Mortgage Application for Buying a Car? Your credit history plays a significant role in your mortgage application. Lenders will review your credit file to assess your financial responsibility, which can influence the mortgage rate and terms offered for your remortgage deal.

How Does Equity Release Work in the Context of Remortgaging for a Vehicle Purchase?

Equity release in a remortgage allows you to access the value tied up in your home, providing extra cash that can be used for a vehicle purchase. This process involves adjusting your current mortgage deal and possibly increasing your outstanding balance.

Can I Change My Mortgage Provider When Remortgaging to Buy a Car?

Yes, you can switch to a different mortgage provider when remortgaging. This might be beneficial if another lender offers a more attractive mortgage rate or better suits your financial circumstances. However, consider any repayment charges or exit fees from your current lender.

What is an Affordability Check in the Context of a Remortgage Application?

An affordability check is a process where the lender assesses your financial situation, including income, debt repayment, and other financial commitments, to ensure you can afford the additional borrowingWhat is Additional Borrowing? A Quick Overview When you take... associated with the remortgage.

How Do Outstanding Balance and Loan Repayment Terms Change with a Remortgage for Car Purchase?

Remortgaging to buy a car may alter your loan repayment terms and increase your outstanding balance due to the additional borrowing. It’s essential to review the new monthly cost and ensure the mortgage repayment aligns with your financial plan.

What Should I Consider Regarding Mortgage Rates When Remortgaging for a Car?

Compare mortgage rates from various lenders to find a viable option that offers favorable terms. Whether you choose a fixed-rate or variable rate mortgage can significantly affect your long-term financial stability and the total cost of the loan.

Is It a Bad Idea to Use a Remortgage as a Form of Debt for Car Financing?

Using a remortgage as a form of debt for car financing isn’t inherently a bad idea, but it depends on your personal situation, the terms of the deal, and your ability to manage the increased debt level. Always seek money guidance or financial advice to make an informed decision.

How Can My Current Mortgage Term Influence My Decision to Remortgage for Buying a Car?

Your current mortgage term can significantly impact your decision to remortgage. If you’re in an introductory rate period or have a favourable mortgage deal, altering your mortgage for a car purchase might not be the most cost-effective choice.

What Are the Implications of Taking a Second Charge Mortgage for a Car Purchase?

A second charge mortgage is an additional loan secured against your home on top of your original mortgage. This can be a way to finance a car purchase without disturbing your current mortgage deal. However, it’s crucial to understand the terms, repayment period, and how it fits into your broader financial picture.