Equity Release to buy a second property

Owning a second property is something many of us aspire to. Whether it means having somewhere to escape to in the cold winter months or a home closer to family, having a second property offers new experiences and opportunities. But is equity release suitable for buying a second property?

Equity release can be a great option to buy a second property, with your first home typically increasing in value it provides a great opportunity to release equity and buy another property outright.

Because equity release is typically available for people aged 55 and above, getting a second mortgage can be very difficult and expensive, it’s with that in mind that people are usually advised to buy the property outright to prevent any additional costs or headaches further down the line.

Here we take a look at using equity release to buy a holiday home, whether you can use equity release to purchase a buy to let and an overall look at, how using equity release to buy a second home would work…

How does equity release work when buying a second home?

Equity release is a really useful tool you can use to trade up (or down) into your second home.

Here’s how it works; say you’re 55 with a home valued at £300,000 with £40,000 left on your mortgage.

Using equity release you’ll be able to release up to £107,675 on your new property valued at £365,000 which will allow you to pay off your existing mortgage and purchase your new home. It’s up to you whether you choose to make repayments on your lifetime mortgage.

The property sale, mortgage repayment, and new property purchase are all completed at the same time. The money from your current property, as well as the equity you’ve released from your new home gives you enough to buy your new home outright.

Below are tables indicating how much equity you can release at different stages of your life and the value of the properties you can potentially purchase

Releasing equity to buy a second home when I’m 55

Property Value Outstanding Mortgage Amount of equity released (from new property) Equity available to purchase second home
150000 20000 54280 184000
150000 0 61950 210000
200000 29000 70800 240000
200000 0 82600 280000
250000 33000 88500 300000
250000 0 103250 350000
300000 40000 107675 365000
300000 0 123900 420000
350000 43000 128325 435000
350000 0 144550 490000
400000 50000 144550 490000
400000 0 166675 565000
450000 53000 165200 560000
450000 0 185850 630000
500000 55000 182900 620000
500000 0 206500 700000
550000 60000 203550 690000
550000 0 227150 770000
600000 61000 221250 750000
600000 0 247800 840000
650000 66000 239540 812000
650000 0 268450 910000
700000 69000 259600 880000
700000 0 292050 990000
750000 71000 280250 950000
750000 0 295000 1000000
800000 74000 295000 1000000
800000 0 324500 1100000
850000 77000 324500 1100000
850000 0 354000 1200000
900000 83000 354000 1200000
900000 0 371700 1260000
950000 88000 354000 1200000
950000 0 383500 1300000
1000000 94000 371700 1260000
equity release to buy a property property quote

Releasing equity to buy a second home when I’m 60

Property Value Outstanding Mortgage Amount of equity released (from new property) Equity available to purchase second home
150000 20000 72400 200000
150000 0 83260 230000
200000 29000 95930 265000
200000 0 112220 310000
250000 33000 117650 325000
250000 0 137560 380000
300000 40000 144800 400000
300000 0 166520 460000
350000 43000 170140 470000
350000 0 195480 540000
400000 50000 195480 540000
400000 0 224440 620000
450000 53000 224440 620000
450000 0 253400 700000
500000 55000 249780 690000
500000 0 278740 770000
550000 60000 275120 760000
550000 0 307700 850000
600000 61000 304080 840000
600000 0 336660 930000
650000 66000 325800 900000
650000 0 362000 1000000
700000 69000 351140 970000
700000 0 362000 1000000
750000 71000 362000 1000000
750000 0 398200 1100000
800000 74000 398200 1100000
800000 0 434400 1200000
850000 77000 434400 1200000
850000 0 470600 1300000
900000 83000 452500 1250000
900000 0 506800 1400000
950000 88000 488700 1350000
950000 0 524900 1450000
1000000 94000 506800 1400000

Releasing equity to buy a second home when I’m 65

Property Value Outstanding Mortgage Amount of equity released (from new property) Equity available to purchase second home
150000 20000 75992 184000
150000 0 86730 210000
200000 29000 115640 280000
200000 0 136290 330000
250000 33000 148680 360000
250000 0 169330 410000
300000 40000 177590 430000
300000 0 206500 500000
350000 43000 210630 510000
350000 0 239540 580000
400000 50000 239540 580000
400000 0 272580 660000
450000 53000 272580 660000
450000 0 309750 750000
500000 55000 309750 750000
500000 0 346920 840000
550000 60000 338660 820000
550000 0 384090 930000
600000 61000 375830 910000
600000 0 413000 1000000
650000 66000 404740 980000
650000 0 413000 1000000
700000 69000 413000 1000000
700000 0 454300 1100000
750000 71000 454300 1100000
750000 0 514185 1245000
800000 74000 512120 1240000
800000 0 549290 1330000
850000 77000 536900 1300000
850000 0 578200 1400000
900000 83000 574070 1390000
900000 0 619500 1500000
950000 88000 602980 1460000
950000 0 660800 1600000
1000000 94000 636020 1540000

Releasing equity to buy a second home when I’m 70

Property Value Outstanding Mortgage Amount of equity released (from new property) Equity available to purchase second home
150000 20000 111600 240000
150000 0 130200 280000
200000 29000 144150 310000
200000 0 167400 360000
250000 33000 181350 390000
250000 0 209250 450000
300000 40000 218550 470000
300000 0 255750 550000
350000 43000 260400 560000
350000 0 292950 630000
400000 50000 302250 650000
400000 0 339450 730000
450000 53000 344100 740000
450000 0 376650 810000
500000 55000 385950 830000
500000 0 423150 910000
550000 60000 423150 910000
550000 0 465000 1000000
600000 61000 465000 1000000
600000 0 511500 1100000
650000 66000 488250 1050000
650000 0 558000 1200000
700000 69000 534750 1150000
700000 0 604500 1300000
750000 71000 581250 1250000
750000 0 651000 1400000
800000 74000 627750 1350000
800000 0 674250 1450000
850000 77000 664950 1430000
850000 0 720750 1550000
900000 83000 720750 1550000
900000 0 744000 1600000
950000 88000 744000 1600000
950000 0 790500 1700000
1000000 94000 767250 1650000

If you’re looking for more advice on whether equity release is suitable for you, find out how we can help – Equity Release Advice.

Why does the amount of equity released vary if I have a mortgage remaining?

Getting a mortgage when you’re older is different compared to when you were younger. The risk factors lenders look at come into play and you’ve deemed a higher risk, simply for being older. For that reason, it is better to be able to buy your second home outright so that you don’t have any high rate mortgage repayments to make.

So because you will have to pay off the existing mortgage balance, and pay for your new home in it’s entirety. If you have an existing mortgage you will have less money left to purchase your new home outright. So there is a balance struck between the amount of equity you need to release to pay off your existing mortgage and buy your new property mortgage free.

What are the pro’s and con’s of using equity release to buy a home

Equity release schemes offer a great way to access a large tax free lump sum with various options such as, interest only mortgages. When considering equity release you must seek professional advice from qualified advisors but here’s a short list of some of the other pro’s and con’s for you to consider:

Pro’s Con’s
You can trade up and get your dream home, which you may not be able to otherwise afford Selling your house and buying another is challenging at the best of times. It’s not uncommon for the sale to be lost due to factors outside of your control.
You won’t need to worry about making repayments if you don’t want to. Trading up might seem like a great idea but it may not be the best for your long term retirement needs
If you don’t have any savings or investments it can be a great way to release money that would otherwise be tied up. It will have an impact on your estate and any potential inheritance you intend to leave
Can help you generate rental income through buy to let properties. An investment property may tie up your finances in ways that restrict your choices in the future
You must seek professional advice Which may add to the cost

What other factors are there to consider when looking at equity release for a second home

Stamp Duty

If you’re looking at buying a second home you’ll have to pay an extra 3% Stamp Duty on top of the normal rates. See table below:

Purchase Price of Property Stamp Duty Rate Stamp Duty Rate for Additional Properties
Upto £125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1.5million 10% 13%
Over £1.5million 12% 15%

Capital Gains Tax

You may have to pay capital gains tax when you sell a property that’s not your home. On residential property, this is charged at 18% / 28% on the amount above the Capital Gains Tax annual exempt amount (£12,300 2021/22 tax year) depending on your other taxable incomes in the year that the property is sold.

Can I use equity release to purchase a buy to let?

A buy to let property is a property you purchase either by itself or as part of a portfolio of properties. People often purchase buy to let properties as a way of generating rental income.

You can use equity release from your primary residence to help fund the property purchase of a buy to let entirely or as part of the deposit used to secure a buy to let mortgage. It is also possible to release equity from other buy to let properties that are part of your portfolio but it’s worth noting that the percentage you can release does differ from your primary residence.

If you were to release equity to purchase a buy to let property, you would still have to pay off any existing mortgage and use the remaining funds.

Remortgaging VS Equity Release

Remortgaging is where you take out a new mortgage in place of your old mortgage with your existing provider, or a different one, on a property you already own. Usually, you remortgage to reduce your monthly payments, get a better interest rate, and can be a good way of freeing up money for things like home improvements.

When you remortgage, you still have a residential mortgage and have to continue to make mortgage repayments.

Both plans typically incur early repayment charges but with an equity release plan, it’s up to you whether you continue to make repayments and you can typically access more money than you could if you remortgage.

Other things to consider with remortgaging:

  • There will be affordability assessments.
  • Your credit history, age and income will affect what you’re offered.
  • Your home may be repossessed if you do not keep up repayments on your mortgage.
  • You’ll always own your home.

It’s always worth seeking independent financial advice when you’re considering either option.

Can I use equity release to purchase a home abroad?

Equity release can be used to purchase a home abroad either as a holiday home or a permanent residence.

Because it’s abroad you won’t have to worry about stamp duty but there are things you should look out for when considering buying abroad:

  • Seek independent legal advice – Many property owners encounter problems with their property because they did not seek independent legal advice and instead used lawyers and translators/interpreters who were recommended by the estate agent or developer and in some cases were acting for both parties. Appoint an independent English-speaking lawyer who is licensed to practice and is experienced in property sales.
  • Use an independent translator – If you don’t speak the language of the country where you want to buy, make sure you have all contracts and essential papers translated by an impartial translator and that you have an interpreter with you at all meetings. Use a translator or interpreter who has been recommended by the agency or lawyer.
  • Getting the right mortgage – Look for the mortgage that is most suitable for you. pay special attention to the interest rate and repayment period, fees for setting up the mortgage as well as early repayment and cancellation fees.
  • Additional costs – Aside from the purchase price, there will be a number of extra charges when acquiring a house overseas, just as there would be if you were buying in the UK.

Because the laws will be different depending on where you buy, a lot of the protection that come with buying a home in the UK may not exist in the country you’re buying. For that reason you always need to be extra dilligent when considering buying abroad.

How much equity do I need to buy a second home?

The amount of equity release you’ll need will depend on a number of factors; what is the existing value of your property, do you still have a mortgage outstanding, are you looking to release equity from a buy to let mortgage… amongst a lot of other considerations.

To be clear though it is generally advised that you’ll need an equity release loan that would cover the cost of the second home entirely. It’s unlikely that you’ll want to be left with any outstanding mortgage arrears on your equity release plans when you buy your second home.

How much equity can I release from my home to buy another

With our equity release provider, Age Partnership, you can potentially release 29.5% equity from your home at age 55, all the way up to 59.3% at 83 years of age.

We’ve put together this equity release calculator to help show you how much money you could release from your existing property to help fund the purchase of another home.

 

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