Equity Release on Buy-to-Let: What You Need To Know

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If you own a rental property and require funds for retirement, home improvements, or further investment, you can access equity through a professional mortgage broker.

Equity release on a buy-to-let property involves homeowners accessing equity, either as a lump sum or regular payments, from their property.

Landlords with properties rented out to tenants often have substantial equity tied up in their property, eligible for release under suitable conditions.

Typically, this equity is accessed through remortgaging, providing homeowners with capital for additional investments, property enhancements, or bolstering retirement savings.

What are the different types of equity release?

While the options for equity release on buy-to-let properties are limited, there are a few alternatives worth considering for accessing property capital.

Here are some of the most common ones:

Lifetime mortgage: This option permits homeowners aged 55 and above to borrow against their home’s value.
Impaired life: Certain providers offer impaired life equity release, allowing individuals to access more capital if they have health issues or disabilities.
Income: Income equity releases provide homeowners with the chance to access equity through regular income payments or staged payments over an extended period.

Inheritance protection: With inheritance protection equity releases, borrowers can designate and receive a portion of their property value, safeguarded by interest roll-up.

How much equity can I release on my buy-to-let property?

The equity you can release from a buy-to-let property hinges on its value, your age, and the equity tied up in the property.

To be eligible for such an arrangement, you typically need to be over 55 years old, with tenants in a shorthold lease of at least 12 months.

The property must also be single-occupancy with a valid lease, without any sublets, and your primary UK residence should be valued at a minimum of £70,000.

How do I release equity on a buy-to-let property?

The most straightforward method to release equity from a buy-to-let property is through remortgaging.

This approach ensures a predictable handling of your rental property’s equity, optimizing its value and available funds.

The pros and cons of equity release on buy-to-let

When considering equity release on a buy-to-let property, it’s essential to weigh the pros and cons.

Pros:

No need to use your home as collateral for the loan.
You won’t owe more money than your property’s value.
Potential reduction in inheritance tax liability.

Cons:

Inability to release equity if your buy-to-let property is worth less than your primary residence.
Possibility of encountering additional property tax fees.
Unable to take out a second loan using your property as collateral.

What are some alternatives to equity release?

As a landlord seeking equity release, your options may be more limited compared to traditional homeowners, but there are still alternatives worth considering:

Remortgaging:

If you can demonstrate a steady rental income from tenants, along with financial stability, you may qualify for a funds release through remortgaging. A higher credit score improves your chances of approval.

Selling the property:

Monitoring real estate market trends and getting your property valued regularly can help determine if its value has appreciated over time. Selling the property allows you to liquidate the asset and access its equity, but it’s important to seek guidance from a financial adviser due to the complexities involved.

Second charge:

A second charge involves taking out a separate loan on your property, secured against the equity available. It operates independently from your main mortgage.

Further advance:

A further advance involves increasing your existing mortgage arrangement, with the lender providing cash in exchange for higher mortgage rates. The borrowed amount is repaid at the agreed-upon rate.