July 28th, 2020

Equity release for a second home

Good news: it’s possible to get an equity release for a second home or buy-to-let property, giving you a tax-free lump sum to spend as you wish. Here’s a quick summary of how equity release for a second home works.

Free up a tax-free lump sum to spend as you please

Do you own a second home or BTL property? Then you can turn some of the money you have in bricks and mortar into cash. Thanks to equity release you can use your property to free up a tax-free lump sum to spend on anything you please – such as retirement income, home improvements or a cruise of the Caribbean. All without having to actually sell your property.

Before planning that dream purchase however, there’s an important footnote. The money you unlock from equity release must be used to clear any existing mortgages before you can use it for anything else.

Are you eligible?

To be eligible for equity release on a second home or BTL property, you must be aged between 55 and 90. The value of your property should be between £70,000 and £6 million – though some lenders may consider higher value properties. If you are releasing equity against a BTL property, your lender may impose restrictions on the type of tenants you can let your property to.

How does BTL equity release work?

If you’re a landlord, buy-to-let equity release can be an attractive proposition. Why? Because you can use rental income to offset loan interest. It’s also easy to apply for, with affordability checks rare. You can spend your lump sum on pretty much anything – however it cannot be used to fund the purchase of additional properties.

Broadly speaking there are three main types of equity release options available to BTL property owners:

  1. You receive a one-off lump sum and no monthly repayments are due. Interest is added to the loan each month for the life of the loan, which is settled when the property is sold or you repay the full loan plus interest.
  2. You service the interest on the loan via monthly payments, so the actual amount borrowed remains the same. The payment term can be from five years to the full term of the loan.
  3. You repay up to 10% of the initial loan amount each year without facing early repayment charges. This allows you to repay the loan in full over time.

How does equity release for a second home work?

Broadly speaking, it’s the same as detailed above. To be eligible for second home equity release, you must use the property for at least four weeks per year – and the property must not be in close proximity to your primary residence.  

Want to talk through your options?

With any big financial decision, it’s always best to talk through your options with an expert. That way you can make your decisions with confidence that it makes good financial sense. We can help. Get in touch for a free informal conversation about your ambitions.

Nothing in this article construes, or is intended to construe, financial advice. You should always seek advice from a professional financial adviser who is familiar with this type of arrangement to ensure any recommendations made are suitable to your needs and circumstances.