August 26th, 2020

Releasing equity to buy another property – here’s how

Have you been wondering about the possibility of releasing equity to buy another property? Is it possible based on your current financial position? Here are a few of the things that you should know.
 

Releasing equity to buy another property – is it possible?

For lots of homeowners, the dream is to buy a second home – perhaps a little holiday home by the seaside for the summer holidays. Others are eager to begin (or expand) a buy to let portfolio. But so often there’s a familiar limitation: money.

But what if you could use the value of your current property to fund the purchase of another – without giving up your home? Well, it’s totally possible with equity release. Allow us to explain how.

 

How does releasing equity to buy another property work?

Think of equity as the value of your current property, minus the outstanding balance left to pay on your mortgage. For example, let’s say your home is worth £250,000 and you have £50,000 left on your mortgage. In effect you have £200,000 of equity that you could turn into cash to fund another property purchase. The longer you own your property, the more equity you build. And when you pay off your mortgage, your available equity is equivalent to the total value of the house.

Equity gives you opportunities.


But how?

When it comes to releasing equity to buy another property, you have two main options: remortgaging or applying for a ‘second charge’.


The remortgaging option

As the name suggests, this involves taking out a new mortgage on your existing property. Essentially you must apply to borrow enough funds to pay off the remaining balance on your current mortgage, plus the amount that you wish to borrow to fund your additional property purchase. This is non-negotiable. The remaining balance of your existing mortgage must always be paid off first. This can leave you with a smaller pot than you had hoped for funding your next purchase.


The second charge option

A second charge mortgage is exactly that: a second charge on your existing property.  So you wind up with two separate mortgages on one property, with two separate mortgage payments each month. You can seek a second charge mortgage from either your existing mortgage provider or you can apply to other lenders.


Which is the best option?

That all depends on your personal circumstances. As with any form of borrowing, it’s important to think carefully before committing to a set decision. Not least when your home is at risk if you get into financial trouble. Another thing to consider with loans as large as mortgages is the fact that seemingly negligible differences in interest rates or loan terms can equate to many thousands of pounds.

It can be very helpful to sit down with an independent financial adviser to discuss the options that are available to you. And with expertise right across the financial landscape, we are well placed to help you make cost-effective, well-judged decisions as you turn the dream of buying another property into a reality. It only takes a minute to start the conversation and find out how our friendly expertise could help you. Let’s go.


You may also be interested in:

>> The pros and cons of equity release
>> Is equity release taxable?
>> Can you repay equity release early?