Can You use Equity Release to Buy a Second Property or Home?

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 used to buy a second property, with your first home typically increasing in value,  equity release provides an opportunity to release equity and buy a second 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. If you prefer you can use our max equity release calculator.

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

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

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

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

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:

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 your options of remortgaging or equity release

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.

For further content on this topic see: Equity release for home improvements.

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.

About The Author

Joslin Rhodes

See author's posts