What is additional borrowing?
Additional borrowing is the extra amount you need on top of your current mortgage balance to purchase a more expensive property. The funds come from a combination of your existing equity and new lending.
For example, if you sell your current home for £300,000 and owe £180,000, you have £120,000 of equity. If your new home costs £400,000, you need a total mortgage of £280,000 (the £400,000 price minus your £120,000 equity). The additional borrowing is £100,000 (£280,000 minus your existing £180,000 balance).
How much more can you borrow?
The amount of additional borrowing available to you depends on two factors: your equity and your income-based affordability.
What determines your borrowing capacity
The lender will assess affordability on the total new mortgage amount, not just the additional borrowing. Your income, outgoings, credit commitments, and the new property’s value all factor into the calculation.
Where do additional funds come from?
There are several ways to fund the gap between your current mortgage and the cost of your new home.
Equity from your current home
- The difference between your home’s value and what you owe
- Released when you sell and the mortgage is repaid
- Acts as your deposit on the new property
Personal savings
- Top up your equity with savings to increase your deposit
- A larger deposit means lower LTV and better rates
- Reduces the amount you need to borrow
Additional borrowing from the lender
- Borrow more than your current balance against the new property
- Subject to affordability assessment
- If porting, the extra may be at a different rate
Gifted deposit
- Family members can gift money towards the purchase
- A signed gift letter confirming no repayment is expected
- The lender will check the source of funds for anti-money laundering purposes
Additional borrowing vs a separate loan
If your current lender won’t offer enough additional borrowing, or you’re remortgaging entirely, the additional amount is simply part of your new mortgage. But if you’re porting, the top-up is often a separate product running alongside your existing deal.
A separate top-up loan means you could have two different rates and potentially two different end dates on the same property. This isn’t necessarily a problem, but it’s worth understanding how it affects your payments and future remortgage options.
When you next come to remortgage, having two sub-accounts can be slightly more complex. A broker will factor this in when advising whether porting with a top-up is better than a clean remortgage at one rate.
How do lenders assess additional borrowing requests?
Whether you’re porting with a top-up or getting a fresh mortgage, the lender assesses your total borrowing against the new property. They’ll run a full affordability check covering your income, expenditure, existing debts, and dependants.
If your income has increased since your original mortgage, you may find you can borrow significantly more than you expect. Conversely, if you’ve taken on new commitments (car finance, larger family, reduced income), the lender may offer less than you need.
This is where speaking to a broker before making an offer on a property is invaluable. They’ll tell you your maximum budget so you house-hunt with confidence.
How does additional borrowing affect monthly payments?
Every extra pound you borrow increases your monthly payments. Here’s an indication of the impact.
Extra monthly cost per £25,000 borrowed (approximate)
Use our repayment calculator to model different borrowing amounts and see how they affect your monthly budget. Even small differences in the amount you borrow can have a noticeable impact over the mortgage term.
Using additional borrowing for renovations
If you’re buying a property that needs work, you can often include the renovation costs in your additional borrowing. The lender will assess affordability on the total amount, and you’ll receive the full sum at completion.
Some buyers prefer to borrow a conservative amount at purchase and then remortgage later once the renovations are complete and the property has increased in value. This can give you access to a better LTV and rate. Your broker can advise on the best strategy for your situation.
Get advice on additional borrowing
At Clearview Mortgage Solutions, we’ll calculate exactly how much additional borrowing you can access, compare the options for funding it, and find the most cost-effective route to your next home.
Contact us for a free, no-obligation assessment of your moving home budget.