How to Release Equity from your Buy To Let Property

Equity release allows property owners and Landlords over 55 to get equity release on a rented property, this allows them to access some of the capital they’ve built in their portfolios, as a tax-free loan.  The loan is repaid when the property is sold – either on the owner’s death or when they move into long-term care.

For buy-to-let investors, releasing equity can be used to supplement retirement income, fund home improvements or repairs, or even purchase additional investment properties.

To be eligible for buy-to-let equity release, your property must have enough value built up in it to cover the loan amount plus any fees and interest charges. The exact amount you can borrow will depend on your age, the value of your property and your lender’s criteria.

Can you take an equity release mortgage on a buy-to-let property?

Releasing equity with a lifetime mortgage on a buy-to-let property is possible, but there are a few things you should know before taking action.

Firstly, if you release equity you will reduce the value of your estate.

Second, you may need to pay income tax on any money you release from your property.

Third, if you have a buy-to-let mortgage, you should check with your lender before you release equity on your mortgage. Some lenders do not allow their customers to take out equity release mortgages on buy-to-let properties. However, if you are interested in this, LG Embrey Financial Planning can help find a lender that will be able to do this

Fourth, if you are considering selling your buy-to-let property in order to release equity, you should be aware that capital gains tax may be payable on any profit you make from the sale.

How to release equity on by to let mortgages

If you are still interested in releasing equity from your property, there are a few things you need to do.

Buy-to-let equity release is when you use the value of your property, above the amount you owe on your mortgage, to provide yourself with a lump sum or regular payments. The money released can be used for anything you want, whether that’s home improvements, paying off debts or supplementing your income in retirement.

As you’ll be releasing equity from your mortgage, the loan plus any interest owed will need to be repaid when the property is sold – usually when you die or move into long-term care.

If you’re considering buy-to-let equity release, it’s important to speak to a specialist adviser. They will be able to tell you if it’s the right option for you and, if so, which provider offers the best deal.

When taking out buy-to-let equity release, there are two main types of products available:

Lifetime Mortgage

A lifetime mortgage where you take out a loan secured against your property. You don’t have to make any repayments during your lifetime but the interest is added to the loan amount and repaid when you release equity after property is sold.

Home Reversion Plan

This is where you sell all or part of your property to a home reversion provider in exchange for a lump sum.

At LG Embrey Financial planning we only usually advise on lifetime mortgages if you plan to release equity at a later date. Home reversion plans tend to come with more pitfalls as the lender takes ownership of your property whereas with a lifetime mortgage you remain the owner of your property.

A buy-to-let lifetime mortgage is a way of releasing cash from your property without having to sell it. It can be an attractive proposition for people who are retired or nearing retirement and who want to supplement their income or release cash for other purposes, such as home improvements.

How much equity can you release from a buy-to-let property?

The amount of equity you can release from your buy-to-let property will depend on a number of factors, including the value of your property, your age and your health.

As a general rule of thumb, the older you are, the more equity you’ll be able to release. Also in regard to your health, the lender can also make an assessment on your health and advise accordingly on if they can offer more or less than a normal customer.

To get an idea of how much equity you could release from your buy-to-let property, you can use an equity release calculator, Nationwide, Canada Life and Aviva all have them on their websites. As an estimate, you can generally release around 45% maximum from the value of your property but this varies slightly from lender to lender and your age and health status also have an impact.

What alternatives are available to Equity Release?

Lifetime mortgage equivalents aren’t the only option when it comes to equity release. You could also consider:

  • Selling the property
  • Taking out a conventional mortgage or remortgage
  • Asking family or friends for financial help
  • Selling some assets, such as an investment property
  • Using savings or taking out an unsecured loan

Each option has its own pros and cons and you should speak to a specialist equity release adviser, like those at LG Embrey Financial Planning, to find out which is the best choice for your individual circumstances.

What are the risks of Buy to Let Equity Release?

Before taking out a buy-to-let equity release, it’s important to be aware of the risks involved. These include:

  • You may not be able to move home in the future: Some equity release providers will allow you to move home but there may be restrictions in place, such as having to repay the loan in full first
  • The value of your estate could reduce: As the loan plus any interest owed will need to be repaid when the property is sold, this could leave your beneficiaries with less money than they otherwise would have had
  • Your property could be repossessed: If you don’t keep up with the repayments on your equity release loan, your property could be repossessed. Although you can choose a product where it doesn’t require you to pay a monthly payment
  • You could end up owing more than your property is worth: If house prices fall or if the interest rate on your loan increases, you could end up having to sell your property for less than the amount you owe
  • You may not be eligible for means-tested benefits: If you release equity, it could affect your eligibility for means-tested benefits, such as pension credit
  • You could end up paying more interest: If you take out an equity release plan with a variable interest rate, your payments could go up if interest rates rise. Again there are options on the market where the interest rate can be fixed for life which mitigates this issue

Can I release equity on my holiday home?

Not all other second properties are buy-to-lets, so can you also release equity from holiday homes and other types of second properties? the short answer is yes. The same process and products are available, as long as you own the property in a conventional way.

When is the best time to consider Buy to Let Equity Release?

The answer to this question will depend on your individual circumstances but as a general guide, it may be worth considering buy-to-let equity release if:

  • You’re a homeowner aged 55 or over
  • Your property is worth at least £70,000
  • You have a mortgage or secured loan on the property
  • You’re looking for a way to generate extra income in retirement
  • You don’t need to move house and are happy to stay put for the foreseeable future
  • You’re aware of the risks involved and are comfortable with them

Does equity release mean you don’t own your house?

The simple answer is you take out a lifetime mortgage then you will still own your home. The ownership just has a charge against it for the amount you have borrowed. But as mentioned earlier if take out a home reversion plan then the lender does take ownership of your home, but again these types of plans are rare and if you are worried then please clarify with your broker or lender.>

If you’re thinking about releasing equity from your buy-to-let property, it’s important to seek professional advice first. Our team of qualified equity release advisers at LG Embrey Financial Planning can help you find the right plan

As with any financial product, there are risks involved in taking out buy-to-let equity release. However, these should be weighed up against the potential benefits before making a decision.

If you’re considering taking equity release on a buy-to-let, it’s a good idea to speak to a broker for professional advice. Buy-to-let is a specialist area and not all mortgage brokers will have the experience or knowledge with an equity release provider to advise you on the best product for your needs.

At LG Embrey Financial Planning we have years of experience in Buy-to-let equity release and mortgage advice. We can offer whole of market advice to make sure you get the right deal for your circumstances. We can also provide guidance on the tax implications and any other financial planning considerations you need to take into account.

If you’re interested in finding out more about buy-to-let equity release, lifetime mortgages or if you’re considering an investment in an investment property, please contact us for further information and to arrange a free initial consultation.

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