Borrowing Additional Money On Mortgage

If you've got to this point and still decide to borrow more money on your mortgage, there are three main options – each has its own pros and cons. See which one might work best for you....

1. Further Advance

Getting your current mortgage lender to lend you more money is called a further advance. It can be relatively quick and straightforward but there are no guarantees your lender will be willing.

The lender will usually:

Have a maximum LTV it will let you borrow up to (typically 80-85%)
Insist you have had your current mortgage for a minimum of 6 months
Have a minimum further advance size (typically £5,000)
Want to know what the money is for (and might ask for proof)
Require you to apply which involves doing another credit check, affordability assessment and potentially another valuation of your property
Require you to put the new borrowing on a separate mortgage rate which is likely to mean arrangement and/or booking fees need to be paid (these can cost £100s)

Don't assume your lender will automatically let you add debt to your mortgage. Even if it does, you must consider the impact on your ability to remortgage in future (getting a new deal either for moving house or to cut costs – see our Remortgage guide).

There are other things to watch out for too. These include:

Your credit history. Even if your credit history was good enough to get a mortgage initially, it may not be good enough now as lenders' criteria change. If your circumstances have changed for the worse, for example your salary has fallen or you have more debt or outgoings now, this could also hurt your chances.
Your loan to value. Often abbreviated to LTV, your loan-to-value refers to the size of your borrowing compared to your home's current value. The lower the LTV, the better mortgage deal you are usually able to get. Don't be surprised if lenders refuse a further advance if your LTV is too high, or make you pay for a new house valuation (if the value has dropped, that unfortunately increases your LTV, as the loan's then a bigger proportion).
Your salary.If your salary has dropped since you took out the mortgage, you may also struggle to convince a lender to extend your mortgage borrowing.

Even if the lender allows it, a further advance could end up increasing the cost of your mortgage in future, which defeats the gain.

As a rough rule of thumb, mortgages get cheaper at each of the following barriers: 60%, 75%, 80% and 90% LTV. If adding debt to your mortgage pushes you above one of those thresholds, it could mean next time you want to remortgage, it'll be costlier. So, any savings on, say, £10,000 debt shifted to the mortgage may be outweighed by the extra cost on £100,000s of mortgage debt itself.

2. Remortgage

This is when you repay your existing mortgage by taking out a new mortgage on the same property with a different lender.

WARNING! This is a drastic step to take if you are ditching a good product just to get the additional borrowing. It rarely makes sense to pay an early repayment charge (which can cost £1,000s) to leave the current mortgage in order to borrow more. You need to check your sums carefully to ensure this is the best move for you.

With the help of our Remortgage guide you can find the best remortgage deal for you, and when you apply, you'll need to ask for the amount you need to pay your existing lender plus the additional you want to borrow. The lender will usually:

Want to know what the money is for (the lender might want proof that's what you're going to spend the money on and is likely to refuse the loan if the money is for funding a business or self-employed activity)
Charge mortgage fees (arrangement and/or booking fee)
Give you the valuation and legal work for free

Remortgaging can be good for borrowing larger amounts, or repaying the money over a long period of time.

Other the other hand, remortgaging can be bad for borrowers who are tied into a mortgage rate and would have to pay an early repayment charge to leave their current mortgage. This can cost £1,000s, and you need to be sure it's worth paying this. Especially if you're on a competitive rate that you couldn't improve on by remortgaging.

It might not be a good option either for those in a rush, as a remortgage usually takes around 6-8 weeks to complete.

3. Secured Loan (aka 'second-charge mortgage')

Simply put, a secured loan or second-charge mortgage is a loan only available to property owners (or mortgage holders), where the lender can forcibly sell your house to get its money back if you can't repay. The 'secured' bit means the lender gets 'security' – not you. You get the opposite, as if you have problems paying back, the lender can repossess your home.

Is my home definitely safe if I take out unsecured borrowing?

When we normally talk about personal loans from a bank or building society, these are unsecured, which means there's no automatic link to your home (so non-homeowners can borrow this way too).

Sadly it is becoming more common that for those in financial difficulty even unsecured lenders can get what's called a 'charging order' on your home. This is where the term 'second charge' comes in; these lenders will be second in line, after your mortgage provider, on the money from the sale of your house.

This doesn't automatically mean it can push repossession though, there's another court stage they'd need to go for and the courts are much more reticent to grant it on charging orders. Yet even with this, it's much more difficult for lenders to take your home if it's unsecured.