There are a number of reasons you may choose to purchase a second home, from purchasing a holiday home to separation arrangements. But the question still remains, can you use equity release to purchase another property, and how can you release equity to buy a second home?
Our equity release specialists have outlined everything you might need to know to begin to understand using equity release to buy a second home.
Understanding Equity Release
Before deciding if equity release is the right solution for your circumstances, you’ll need to understand what equity release is and the implications it may have.
What is equity release?
Equity release is a financial product that allows homeowners to unlock the value tied up in their property without having to move out. This can be an attractive option for those looking to raise funds for various purposes, such as clearing any existing debt, purchasing a second property or simply funding the retirement they deserve.
There are two main types of equity release, lifetime mortgages and home reversion plans. Each coming with their own pros and cons, you will need to work with a qualified independent equity release adviser to discuss which option is suitable for your personal circumstances. Equity release is available as a tax free lump sum or in a drawdown facility for you to access at a later date, depending on which plan you choose to move forward with.
Lifetime mortgages
A lifetime mortgage is the most popular type of equity release, allowing homeowners aged 55+ to secure a loan in the form of a mortgage against their property without the obligation to make monthly repayments.
With a lifetime mortgage, you can choose to pay some, all or none of the interest over the lifetime of the mortgage. The loan, in addition to any interest that has accrued, will be repaid when the last applicant passes away or moves into long term care, often through the sale of your home.
Learn more about lifetime mortgages.
Home reversion plans
Home reversion plans involve selling part or all of your home to your provider at a discounted price, and in return receiving a tax free lump sum, or funds available in a drawdown facility. You will be able to remain in your home ‘rent-free’ until the last applicant passes away or moves into long term care, where the provider will then reclaim the percentage sold at market value.
Learn more about home reversion plans.
Eligibility criteria for equity release to buy a second home
If you’re looking to release equity from your home, there is a criteria to allow you to qualify for equity release.
- You must be aged 55+
- Your property value must be £70,000+
- 75+ years left on the lease if leasehold
- The property must be your main residence
- The property must be in a good, habitable condition
If you don’t meet all of the eligibility criteria, there may still be options available to you. Speak to a whole of market equity release specialist today to learn more or get started with our free online equity release calculator to see how much equity you could release from your home.
How much equity can I release from my house?
To find out how much equity you can release from home, you’ll first need to find out how much equity is in your current property. This is equal to the value of your home, minus any existing mortgage or loans secured against the property. For example, if your home is valued at £200,000 and you have an outstanding mortgage of £50,000, the equity stored in your home would be £150,000.
The amount of equity you can release from your house depends on several key factors, including the property’s current value, any loans or mortgages secured against your home, your health and age.
Typically, equity release providers will only allow you to release up to a set percentage of your property’s value, however this can change based on the above factors. It is important to note that the exact amount can vary and you will be required to clear any existing mortgages or loans secured against your home with the funds you release.
Speaking with an equity release adviser is essential to receive tailored advice that takes into consideration your specific situation.
What costs are involved with buying a second property?
Before deciding on the amount you would like to release from your home and proceeding with a property purchase, you’ll need to take into consideration the associated costs of purchasing second properties.
Similarly with moving house, there are a few costs to consider when buying a second property including:
- Stamp duty
- Estate agent’s fees
- Surveyor’s fees
- Solicitor’s fees
- Council tax costs
Depending on your circumstances you may also be subject to early repayment charges if you are clearing your mortgage with the funds released and income tax if you receive rental income from if you plan to purchase a buy-to-let property.
Our specialist advisers are on hand to answer your questions and discuss your circumstances in detail, contact us today to learn more.
Reasons for buying a second home with equity release
There are many reasons homeowners choose to use equity release to buy a new property including:
- Arranging to live separately following a divorce or separation
- Buying a holiday home
- Buying a property for family to live in
- Boosting retirement income with a buy-to-let
Can I take money out of my existing home equity to buy another house?
Yes. It is possible to release equity to buy a second property by accessing funds tied up in your existing home. By taking out equity release, you can use the released funds to purchase a second home. Releasing equity to buy a second home involves leveraging the value of your existing property.
However, it’s essential to note that you are obligated to reside in your primary residence, your second home may be a holiday home. Additionally, the payment of stamp duty for your second property will depend on its value.
Using equity release to purchase a buy to let property
Whether you are looking to increase your property portfolio or fund your retirement with rental income, using the money released from your equity release plan could help you buy a second property to achieve this.
Whilst using the funds from equity release can fund a deposit or even purchase the property outright, you’ll need to consider other costs that come with a purchasing a second property, including stamp duty, arrangement fees and potential tax on the income you receive from the rental property.
In addition to this, if you choose to proceed with a second mortgage on the second property, you may need to pay a mortgage advice fee, in addition to monthly payments in accordance with your new mortgage agreement.
Request a callback from one of our specialist advisers today to learn more about equity release to purchase a buy-to-let property.
Purchasing a holiday home with equity release
For many, purchasing a holiday home opens up the possibility of long weekends away and spending some much needed time with friends and family. Which is why you may have considered using equity release to help you reach the dream of owning the keys to your very own holiday home.
Whilst equity release can help you raise the funds you need towards a deposit for a residential mortgage or raise the full funds to avoid monthly mortgage payments, you will need to speak to your adviser in detail about how you plan to use your holiday home. Many lenders require your current home to remain your main residence for the duration of your plan, unless you choose to move home.
Speak to our equity release specialists today to learn more about purchasing a holiday home with equity release.
Choosing the right equity release adviser
To proceed with equity release, you’ll first need to find an equity release adviser that is qualified and reputable. It is important to check if your adviser is whole of market or limited to a select number of lenders when offering advice.
Whilst you cannot proceed with equity release without an equity release adviser, you decide who you want to help you through the process. The adviser of your choosing should be transparent about any fees from the beginning and recognise that equity release may not always be the best option available for your circumstances.
Your equity release adviser will check you meet the lending criteria and after searching the market, they should discuss your options in detail, encouraging you to bring your family along to have their questions answered too.
And as proud members of the equity release council, we encourage you to seek an adviser that is a member of the equity release council and adheres to their standards like we do.
Specialist whole of market advice
At Bower Home Finance, we pride ourselves in our customer-first approach. We work closely with each of our customers to ensure their needs are being met and that equity release is the right decision for their circumstances.
From checking their means tested benefits entitlement to ensure all avenues have been exhausted, to ensuring all potential risks are explained by our specialist equity release advisers, we’ll continue to keep you up to date every step of the way.
Get started today by finding out how much equity you could release from your home with our free online equity release calculator or get in touch today to speak to our qualified advisers.
FAQ’s
Can you do equity release more than once?
Yes, it is possible to do equity release more than once. This can include a further advance on your existing plan, or switching over to a new equity release plan or provider to potentially secure further funds or a better interest rate.
Some people take small amounts as they need them over many years, hence delaying any rolling up of interest with a lifetime mortgage or selling a percentage of the house with a home reversion plan. Sometimes it is possible to re-mortgage a lifetime mortgage to a better plan, or one that allows you to take out more money.
If you own your property outright, your equity is equal to the full value of the home, which can provide more favorable equity release options. Lenders will assess factors such as age, health, and property value, to determine what plans are suitable for your circumstances and whether additional funds can be released from your existing plan.
An equity release specialist such as Bower will be able to advise you on whether you can do this and the options available to you.
Should I involve a family member when discussing equity release?
At Bower we encourage you to involve your family in the discussions you have about equity release with your adviser from the beginning.
By involving your family, we can answer any questions they might have and help everyone understand if equity release is right for your circumstances, and discuss alternative options if appropriate..
Can I use equity release to fund a buy-to-let property?
Yes, you can use your equity release funds towards a deposit for a buy-to-let property, or even to purchase it outright. However, it is important to consider the implications of equity release and discuss taking equity release with a qualified, independent adviser.
Can I use equity release to buy a second home?
Yes, whether you’re dreaming of some winter sun or you’re simply looking for a cottage in the country as a weekend getaway, you can use the funds you release through your equity release plan to buy a holiday home.
However, you will need to discuss this in detail with your equity release adviser as some lenders will have requirements surrounding the amount of time you spend in your holiday home in comparison to your main residence.
