Additional Borrowing on Mortgage

When looking to raise extra capital against your property equity, the most common ways are to either remortgage, or take out a secondary homeowner loan for the extra funds.

However, snuck somewhere in the middle of these two products lies the further advance, a top up of additional borrowing raised against your existing mortgage deal.

If you’re looking for an easy way to pay for home improvements or perhaps consolidate debt, additional borrowing in this way may be an appropriate solution. 

Is Additional Borrowing on a Mortgage Possible?

Yes, as long as your mortgage lender is up for the idea. The good news is that many are. Additional borrowing on your mortgage will depend on several variables, including: 

• Does the lender offer a further advance? Additional borrowing is uncommon and a bit of a niche product, so some lenders may simply prefer you to remortgage, though doing that may not be the best deal for you. One way to check if your mortgage deal lender offers a further advance is to search on their website or through their online banking products.
• Have you built up enough equity? It's essential to have equity built up in your house if you want to borrow more money on your existing mortgage. The amount of equity you have will depend on how much you've paid off in monthly repayments over your mortgage term. Approval for further borrowing secured against your property is unlikely if you don't have much equity.
• Will you pass the required credit and affordability tests? Like any other secured loan, the lender will need to check your credentials, ensuring you have the ability to make the monthly repayments. The lender will typically check how many other debts are in place, and whether you would be able to make the new repayments on your mortgage, before approving the extra money.
• Do you have a good reason for the money? Lenders are obliged to a code of responsible lending and will want details on what you intend to do with the capital. If you want to complete home improvements or add energy saving ideas, it makes sense. But if you’re asking for more money to take a big holiday, it may be rejected.

If you’re unsure about your options, speak to a Clifton Private Advisor. We can explore whether the additional borrowing is possible under your current terms. We will help you identify suitable borrowing options, help you calculate repayments, and understand the costs involved.

We would always recommend that you speak to an independent expert and think carefully before securing other debts against your home. You also need to ensure that you will be able to maintain the existing repayments on your mortgage.

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How Much Extra Can I Borrow on a Mortgage?

Borrowing secured on your home is always subject to the lender’s loan-to-value (LTV) limits. These are calculated based on the total size of the mortgage, as well as taking into account other existing debts you may have secured, such as second charge homeowner loans.

The basic rule of thumb is that the total LTV of all loans combined cannot exceed your lender’s limit. This is usually between 85% and 90% on residential mortgages, and a lower 70% to 80% on buy-to-let properties.

Many lenders will set a different LTV limit based on your use of the money. Additional borrowing to complete home improvements is able to achieve the highest LTVs possible, as this is seen as an extremely valid reason to increase borrowing secured against your home.

It’s also worth considering that lower LTVs typically command better interest rates for residential mortgages, as they represent a lower risk for the lender. It’s a good idea to have a budget in mind, with current mortgage payments in mind, to not overstretch yourself with additional borrowing and to keep interest to a minimum.

We always recommend that you think carefully before securing or consolidating debts against your home. It's also worth speaking to an independent advisor about your circumstances.

As an illustrative example, consider Yasmin.

5 Reasons Why People Borrow More Money on a Mortgage

Lenders will want to know why you are borrowing the money. This will affect your application and will also affect loan size and mortgage rate offers. Having a clear plan of use for the capital is an important part of your preparation. 

1. Complete Home Improvements

Undertaking home renovations is the primary reason most people have for new borrowing on their mortgage. Investing money in your own home will increase its value and provide the lender with more security for the remainder of your mortgage term.

For this reason, home improvements are able to command higher loan-to-value amounts and often secure lower interest rates. This includes: 

• General repairs and renovations 
• New roofs 
• Loft conversions 
• Main property extensions 
• Outbuilding construction 
• Accessibility improvements 

2. Buying Another Property

Raising the deposit for a second property, either as a second residential home or as a buy-to-let (BTL) investment, is another common use of new borrowing on residential mortgages. 

Though increasing your personal borrowing will make future affordability tests more difficult, because BTL mortgages test viability against the rental income and not your personal affordability, additional borrowing stands as an excellent way to make that investment. 

Speak to one of the BTL specialists in our mortgage team to learn more about how you can use the equity built up in your family home to secure a rental investment for the future. 

3. Pay Off Current Debts

Debt consolidation is an excellent use of your home equity, allowing you to take control of other debts through a single monthly payment at a far lower interest rate. 

If you are considering new borrowing on your mortgage to take control of your other financial obligations, it’s important to be up front with your lender.

Discuss your options with a Clifton Private Finance advisor to make sure you get the right product for your needs; with access to the whole marketplace of UK lenders, we can compare products from different lenders against your current mortgage lender’s rates to make sure you benefit from a low rate of interest and terms that fit your circumstances. 

Note that there are some circumstances where your lender will be unable to approve your application. Where your other debts are from gambling, for example, regulations regarding responsible lending may prohibit the lender from releasing the funds. 

4. Finance Big Plans

Releasing the money locked in your property through new borrowing can give you the funds you need for a personal project or large purchase.

As the rates for residential mortgages are among the lowest possible in the loan market, you will typically find that you can get a far better deal with a further advance on your existing mortgage than you will with an unsecured loan. 

Many lenders will have specific terms limiting use in some cases.

Using your mortgage to pay for a car purchase, fund a new business venture, or splurge on a fantastic holiday are all viable uses of the cash.

However, it’s extremely important that you are transparent about using additional borrowing in this way. And some lenders will not approve a new loan for a holiday, for example.

Discussing your plans in full with our mortgage team will help you select the perfect loan for your needs, whether that’s additional borrowing on your mortgage or a cost-effective alternative. 

5. Helping Family Members

Often, the older generation of homeowners is able to help the younger generation become homeowners. Using new borrowing on residential mortgages to provide money towards a deposit for a child or grandchild, or to help them with money to see them through university, is another legitimate use of additional borrowing.

It is important to understand that helping family members can typically only be done on a gifted basis, meaning there can be no arrangement that they ever pay you back.

This is especially important if you are providing all or part of their own home-buying deposit, as it will form part of their affordability testing and home ownership clarity.

Your lender also will not be comfortable lending you money for you to lend out to another. As with all additional borrowing, it is vital that you are completely transparent and declare your intention for the money as part of your application.

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How Is Additional Borrowing Structured?

Additional borrowing through a further advance is often chosen thanks to its simplicity. With a strong relationship already in place with your lender, it can make sense to remain with them rather than look to a more complex remortgage.

Other considerations, such as early repayment charges, can also be a factor, making additional borrowing cheaper when structured in this way. 

It’s important to understand that additional borrowing is not actually an extension on your mortgage. Your existing mortgage deal is locked and cannot be ‘stretched’ or added to. You will continue your existing monthly repayment for your mortgage term.

However, lenders look to make things as simple as possible and so it is often spoken about in those terms. In the background, however, things are slightly different. 

A further advance is a new loan, added to your mortgage deal but with its own structure, term, and interest rate. However, it is not quite as separate as a second charge homeowner loan.

• Additional borrowing is ‘first charge’ - Loans secured on your property are listed in terms of importance. Your mortgage is considered the first charge loan, which means it is senior to any other loans and must be paid off first should any difficulties arise. This makes residential mortgages somewhat less risky for the lender than other loans, and allows them to command better interest rates. As the additional borrowing is connected to your mortgage, it too is a first charge loan and gains those advantages. 
• Additional borrowing has its own interest rate - Mortgage rates change constantly, and the deal you got on your main mortgage cannot be replicated cost-effectively by the lender when you look to additional borrowing. The new loan will be at the current mortgage rate for your lender, which may be larger or smaller than your main mortgage rate. 
• Additional borrowing has its own repayment structure - As it is separate to the mortgage and not rolled in, the further advance has its own repayment schedule and doesn’t impact your existing monthly repayment. Typically, the additional borrowing is paid off first, while the existing monthly repayment continues as usual. 
• Additional borrowing must be evaluated on its own merits - The additional borrowing application is a complete process, separate to the existing mortgage paperwork. You will need to meet an affordability check that evaluates your existing debts and total outgoings against your income. You will also need to demonstrate creditworthiness.

What is the Difference Between Further Advance and Additional Borrowing? 

A further advance is the main type of additional borrowing. For most lenders, there is little difference, and additional borrowing always refers to a further advance structure.

This means you: 

• Stay with your current mortgage lender
• Are reassessed for affordability and creditworthiness
• Get an additional loan secured on your property with a new rate and its own repayment terms

Some institutions, however, may use the term ‘additional borrowing’ to refer to the wider range of products that can provide extra funds in addition to your mortgage, including remortgages and second charge homeowner loans.

At Clifton Private Finance, we act as an independent, whole-of-market advisor. This means we compare all product options available to you in order to find the best deal, with your existing debts and current mortgage payments in mind.

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Is It a Good Idea to Borrow More on Your Mortgage? 

Only you can know your circumstances and should take into consideration such thoughts as your future plans and income security.

Sizeable additional borrowing may take many years to repay, tying up a chunk of your money for the foreseeable future and putting you in a position where you have less flexibility to react to challenges in your life or seize opportunities that may occur.

However, because of the strong security presented by property, additional borrowing on your mortgage will have a low interest rate, making it one of the cheapest ways to borrow. 

Some question worth posing to yourself include: 

• Are my finances secure enough to take on the extra borrowing? - Don’t just think about now, but consider your position in five years, or ten if your planned borrowing would extend that far.  
• Was I looking forward to clearing my mortgage? - While you are not directly extending your current mortgage term, you are adding another charge to the property, which won’t be truly yours until it is fully paid. 
• Will this add value to my home? - Perhaps the most positive use of additional borrowing is to improve your home and, consequently, its market value. In many cases, home improvements can boost the sale value of your property above the cost of the loan, making it an excellent investment. 
• Will this actually save me money and improve my financial position? - If you are looking to a further advance to consolidate debts, be sure to consider the full picture to see if will bring the benefits you are looking for. 
• Have I spoken to Clifton Private Finance about alternatives? - It’s always worth speaking to one of our mortgage team or debt specialists to make sure you’re making an informed decision that considers the other options available to you. 

5 Alternative Ways to Borrow Extra Money When You Have a Mortgage 

Clifton Private Finance is a whole-of-market broker, which means we have access to every lender in the UK, with relationships with many of the top decision makers in both high-street banks and specialist lenders.

Our mortgage team have the experience you need to properly evaluate your options and choose a solution that is the best for you. 

1. Second Charge Mortgage 

A second charge mortgage, also called a second charge loan or homeowner loan, is an additional loan secured on your property. It is extremely similar to additional borrowing through a further advance, and can look at a glance to be the same thing, however there are a few key differences: 

• Second charge vs. first charge - Additional borrowing is first charge, which means it holds the same level of importance as your current mortgage. From a lender’s perspective, this means additional borrowing is less risky than a second charge mortgage. This can lead to cheaper rates and slightly more flexible terms. 
• Different vs. same lender - Additional borrowing is always with the same lender as your existing mortgage deal. This has both advantages and disadvantages in that can mean the application process is smoother and easier, but it also limits you to your lender’s rates and products. Looking at the whole market for a second charge mortgage opens you up to a wider spread of options, including specialist products that may be more flexible, and have more competitive interest rates. 
• Loan size - Second charge loans are more likely to be capped at a slightly lower LTV than additional borrowing on your residential mortgage. Remaining with the same lender can often result in a 90% LTV cap, while secondary lenders are more likely to limit this to 85%. This can be extremely important if budgets are tight. 

2. Remortgage 

A remortgage involves the process of taking out a full new mortgage that pays off and replaces your existing mortgage in full. By taking out a remortgage that covers your current mortgage in full while also providing the additional capital needed, you achieve a very similar end through a slightly different route. There are substantial differences when remortgaging over a further advance: 

• Wide range of lenders - You do not have to remortgage with your existing lender. This allows you to explore the full market of mortgage lenders and products to find a rate and mortgage terms that suit you. 
• New fixed term - With a remortgage, you can also obtain a new fixed term, potentially providing you with extra peace of mind for the coming years. 
• Single payment - Because the additional money needed is effectively fully folded into a single mortgage, the remortgage has only one monthly payment, rather than separate ones for the existing residential mortgage and the additional borrowing. 
• Potential fees - If your current mortgage is in a fixed term, there are likely early repayment charges (ERCs) that would be due to the current lender. It is important you calculate and adjust for fees when considering a remortgage. 
• Full affordability tests - Additional borrowing does involve affordability tests, but these may be more relaxed than a full affordability and stress test performed by a new lender with a complete mortgage application. It is important that your creditworthiness and finances are in good order to get the best rates with a remortgage. 
• Property valuation and legal fees - In addition to the affordability testing, a remortgage with a new lender would involve additional fees for a property valuation and associated legal work. 
• Potentially better loan size - Some lenders may be able to offer greater LTV amounts than your current lender would provide through additional borrowing on the mortgage. 

To understand the fine differences between a remortgage and other options, such as a second charge loan, look to our knowledge base or speak to a Clifton Private Finance mortgage advisor. 

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3. Bridging Loan 

For short-term needs, a bridging loan may provide a viable alternative. Based on a structure of a defined ‘exit’, bridging finance offers flexible funding that can help with home improvement and renovation needs, or other capital requirements where time is a significant factor. 

Typically, the bridging finance would be in place for a few months until alternative finance was secured to clear it as part of the exit strategy.

It can also be used if you are intending to sell the property, providing the funds for renovations to bring the house up to a modern standard and cleared with the proceeds from the sale. 

To learn more about bridging finance, speak to a Clifton Private Finance bridging advisor.

4. Unsecured Personal Loan 

For lower value needs, an unsecured personal loan could provide an easier and suitable alternative. Though interest rates are higher, an unsecured loan represents a shorter-term solution that may be suitable for sums of £25,000 or less. 

Unsecured loans do not put your home at risk and are completely independent of your residential mortgage. A strong credit rating is preferred, however, especially to secure the most competitive rates. 

5. Car Finance and Other Asset Finance 

If you are planning to purchase a car or other asset, such as new computer equipment, then specific finance tailored to that product can be more effective.

Car finance can be structured as a lease for low monthly payments and fewer concerns regarding depreciation and resale, making it more appropriate than obtaining extra money through additional borrowing. 

Borrow More on Your Mortgage with Clifton Private Finance 

At Clifton Private Finance, we work on your behalf to secure the right finance for your needs.

Our mortgage experts will discuss your individual circumstances with you and explore the range of options available from both your existing lender and other banks and lenders across the UK.

We have established relationships with lenders all over the UK and can help you secure a low rate and flexible loan terms that are best suited for you.

Contact Clifton Private Finance today for a free consultation with our mortgage team. 

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