What is additional borrowing?
Additional borrowing is the extra you need on top of your current mortgage balance to buy a more expensive property. It comes from a mix of your existing equity and new lending.
Say you sell your current home for £300,000 and owe £180,000, leaving £120,000 of equity. If your new home costs £400,000, you need a total mortgage of £280,000, which is the £400,000 price minus your £120,000 equity. The additional borrowing is £100,000, the £280,000 total less your existing £180,000 balance.
How much more can you borrow?
How much additional borrowing you can get rests on two things: your equity and what you can afford based on your income.
What determines your borrowing capacity
The lender assesses affordability on the whole new mortgage, not only the additional borrowing. Your income, your outgoings, your credit commitments, and the value of the new property all feed into the sum.
Where do additional funds come from?
A few sources can cover the gap between your current mortgage and the cost of your new home.
Equity from your current home
- The gap between what your home is worth and what you still owe
- It is freed up when you sell and the mortgage is cleared
- It then acts as your deposit on the new property
Personal savings
- Add savings to your equity to build a bigger deposit
- A larger deposit means a lower LTV and better rates
- It brings down the amount you need to borrow
Additional borrowing from the lender
- Borrow above your current balance against the new property
- It depends on passing an affordability assessment
- If you are porting, the extra may sit at a different rate
Gifted deposit
- Family can gift money towards the purchase
- You will need a signed gift letter confirming the money need not be repaid
- The lender checks where the funds came from for anti-money-laundering reasons
Additional borrowing vs a separate loan
If your current lender will not stretch to enough additional borrowing, or you are remortgaging outright, the extra amount just forms part of your new mortgage. When you are porting, though, the top-up is often a separate product running alongside your existing deal.
A separate top-up loan can leave you with two rates, and possibly two end dates, on the same property. That is not necessarily a problem, but it is worth knowing how it affects your payments and your future remortgage options.
When you next come to remortgage, two sub-accounts can make things a little more involved. A broker will bear that in mind when advising whether porting with a top-up beats a clean remortgage on a single rate.
How do lenders assess additional borrowing requests?
Whether you are porting with a top-up or taking a fresh mortgage, the lender assesses your total borrowing against the new property. They run a full affordability check that looks at your income, your spending, your existing debts, and any dependants.
If your income has grown since your original mortgage, you might be able to borrow quite a bit more than you expect. On the other hand, if you have picked up new commitments such as car finance, a bigger family, or a drop in income, the lender may offer less than you need.
This is where a chat with a broker before you make an offer really pays off. They will tell you your maximum budget so you can house-hunt with confidence.
How does additional borrowing affect monthly payments?
Every extra pound you borrow adds to your monthly payments. Here is a rough sense of the impact.
Extra monthly cost per £25,000 borrowed (approximate)
Use our repayment calculator to model different borrowing amounts and see how each one lands on your monthly budget. Even small changes in what you borrow can add up noticeably over the mortgage term.
Using additional borrowing for renovations
If you are buying somewhere that needs work, you can often roll the renovation costs into your additional borrowing. The lender assesses affordability on the total, and you receive the full sum at completion.
Some buyers would rather borrow modestly at purchase and then remortgage later, once the work is done and the property has gained value. That can open up a better LTV and rate. Your broker can advise on the approach that fits your situation.
Get advice on additional borrowing
At Clearview Mortgage Solutions we will work out exactly how much additional borrowing you can access, compare the ways of funding it, and find the most cost-effective route to your next home.
Get in touch for a free, no-obligation assessment of your moving home budget.