Equity Release: How to Fund a Buy to Let Purchase

In light of the ongoing cost of living crisis, the fastest rise in UK house prices since 2007 and concerns over an incoming recession, economic uncertainty is the current talk of the town. 

As such, investing in buy-to-let property through some of the more traditional means, like taking out a loan or mortgage, can be a lot more difficult than it was before. And, because of this, many prospective buyers are now looking for alternative ways to fund their property purchases. 

One such example comes through equity release – a means of taking cash out related to the value of the home – with a huge number of Google searches recently questioning whether buy-to-let purchases can be financed through this process. 

Well, we’re here to tell you that yes, they can. And here’s how you can do it.  

Equity Release on Residential Properties: A Quick Overview

If you are looking to release equity from a residential property to fund the purchase of a new buy-to-let property, the process should be relatively plain sailing – especially when using a specialist mortgage broker. 

However, as with any type of equity release scheme, there are a few set criteria you will need to meet in order to qualify. 

“To qualify for equity release, you will need to be over the age of 55 (or over 65 for a home reversion plan) and own your own home,” says Mortgage Broker and MD, Pete Mugleston from Online Mortgage Advisor. “Most equity release providers will cap the amount they will offer at somewhere between 20% and 50% of the property’s market value. Some go higher than this and others lower.” 

Once you meet these criteria, the money you choose to release from your property can then be used in any way you wish – from funding a dream holiday to financing your buy-to-let investment – without any further hoops to jump through. 

Equity Release on Buy-To-Let Properties: A Quick Overview

If you are looking to release equity on a buy-to-let property you own, while it is entirely possible to take out an equity release mortgage, the process tends to be a bit more difficult than on residential properties. 

This is because most equity release mortgage providers refuse applications where the capital to be released is from an existing buy-to-let property. In fact, only a small minority of providers will even consider applications for these types of properties. 

Therefore, it’s generally recommended to use an experienced broker when trying to source the best possible deal. In doing so, they will be able to identify the best course of action, offer professional advice and ensure that releasing equity is actually the right financial decision for your circumstances. 

What’s more, releasing equity on an existing buy-to-let property offers a much more attractive means of raising funds over simply selling the property. This is because selling typically incurs capital gains tax, which could have a huge impact on the amount of money you actually take from the sale. 

How Much Equity Can Be Released? 

The amount of equity you can release from your property will vary from landlord to landlord and will depend on a number of factors.

If, for example, you are looking to release equity from your main property of residence, taking out a lifetime mortgage (the most popular form of equity release) will typically allow you to borrow around 20% to 60% of the home’s overall value. 

On the other hand, if you’re releasing equity from a buy-to-let property, the loan to value percentage you can borrow will largely depend on your age; the maximum amount starts at 19% for 55 year olds and increases to a maximum of 44% at 80 years old. 

However, funds can be released from several buy-to-let properties at the same time. So, if you have a portfolio of buy-to-let properties already set up, you can release a larger amount of equity from these without affecting the rental income you are already bringing in. 

Summary

Whether you are looking to invest in your very first buy-to-let property, or are trying to expand on a pre-existing portfolio of buy-to-lets, taking out an equity release mortgage could help turn those dreams into a reality. 

However, as with any form of borrowing, releasing equity isn’t something you should take lightly. Therefore, it’s important to know as much as you can before agreeing to anything you’re unsure about. 

A professional mortgage broker will be able answer any questions you might have, helping you determine whether equity release is the best way to fund your first – or next – buy-to-let property purchase.