Can I Use Equity Release to Buy a Second Home?

There are many things you can spend your equity release funds on, from home improvements to once-in-a-lifetime holidays.

Many people reach out to us and ask ‘can I use equity release to buy a second home?’, and the answer is yes.

Generally, the best way to do this is to get a second home mortgage, but we will talk you through the many possibilities in this article and you can decide which one is best for you.

If you can’t make a decision, don’t hesitate to contact us as we are happy to advise you in the best way we can.

Our equity release specialists are prepared to tell you if they believe a certain route is not right for you, but they are also happy to encourage you to pursue a plan that would benefit you.

Please call our 24-Hour Helpline: 0330 058 1579

Can I Use Equity Release to Buy a Second Home? The Short Answer

The short answer is yes, it is possible to purchase a second home with an equity release scheme  — specifically a lifetime mortgage.

The easiest way to do this is to speak to an adviser about getting a second home/holiday home lifetime mortgage (1).

This works if you are intending to live in the second home for the rest of your life.

You could also opt for a buy-to-let mortgage if you want to rent out the home to earn a rental income (2).

Please call our 24-Hour Helpline: 0330 058 1579

Who Can Release Equity to Buy a Second Home?

To release equity to purchase a second home, the basic eligibility criteria is the same as it is for every lifetime mortgage. You must own a property that is worth at least £70,000 and you must be at least 55 years old (3).

Certain second home plans will have further requirements, so it’s important to check these before you make an application. Sometimes, you will need to have a good credit rating and be able to prove that you are earning (or were earning) a certain income.

When purchasing a second home with equity release, remember that there may be limits on the property you can acquire, including the location, the size, and the value.

This is because the equity release provider wants to ensure they will benefit from the scheme when the house is eventually sold.

Please call our 24-Hour Helpline: 0330 058 1579

Why Would You Take Out Equity to Purchase a Second Home?

There are many reasons people use their equity release loan to purchase a second property.

Firstly, some people have always wanted to own two properties and live between the two, as this would provide them with more flexibility and a change of scenery every so often.

Perhaps they want to be closer to family but they don’t want to make the move officially as they still enjoy living where they are.

Another reason is that people may want a holiday home in another part of the country, or even abroad, where they can spend time with their family away from the hustle and bustle of everyday life.

Perhaps they couldn’t afford this ordinarily, but an equity loan would help them to pursue this.

Please call our 24-Hour Helpline: 0330 058 1579

Things to Consider

Firstly, you must remember that taking out equity is not a risk-free process, so consider the disadvantages before you commit to it.

Remember that you will get into debt, and this will be covered by the sale of your property, but it will affect your family’s inheritance.

It is also wise to remember that many plans have high interest rates, so not only will you owe the lender the loan amount, but you will also owe plenty of interest by the end of the scheme, as well as compound interest.

When you are looking into the downsides, you are bound to discover that there are additional costs involved with purchasing a second home, such as additional solicitor’s fees.

This means the second home plan can end up being more expensive than a more basic plan such as a lump sum lifetime mortgage or a drawdown lifetime mortgage.

Finally, there are certain limitations with a second home arrangement, including the fact that you must stay in your primary property for at least six months every year.

Sometimes, there has to be a certain distance between the two properties, so this is another thing that may restrict you from obtaining your preferred property.

Please call our 24-Hour Helpline: 0330 058 1579

What If I Just Want to Move Home After Releasing Equity?

If you are interested in a second home plan because you are worried you will get fed up of living in the same home for the rest of your life, you can move home after releasing equity. However, the process is far from easy, so we recommend looking for an alternative to equity release first.

Many equity release lenders will request that you remain in the same property for the duration of the scheme (until you die or move into long term care).

Others have to provide you with a suitable alternative property, but this property has to meet their criteria, so there is not much flexibility.

What If I Want to Rent Out a Property Using My Equity Loan?

With a buy-to-let arrangement, you could release funds from your house to purchase another property and rent it out.

This is a great way to earn money consistently in your later years, and it is particularly beneficial for people who are retired and are only relying on their pension.

You can either request a tax-free lump sum of cash to pay for the new property, or you can receive monthly payments to help you with the costs.

In terms of paying back the loan, there is no obligation to do so while you are alive, but you are sometimes able to make voluntary repayments.

Buy-to-let schemes are appealing as there are no affordability assessments, so even if you have a bad credit history and a low income, you could still benefit from this scheme.

They also allow homeowners to put their loan towards something that will continue to benefit them for the rest of their life.

However, it’s important to remember that taking out a buy-to-let equity loan could impact your entitlement to means-tested state benefits, so make sure you discuss this with an adviser if this applies to you.

Please call our 24-Hour Helpline: 0330 058 1579

What If I Want to Purchase a Holiday Home With My Loan?

If you want to use your loan to get a holiday home, the process is identical to releasing funds for a second home in general. The only difference is that you will be using the property as a holiday home, but you will still be expected to stay there for a certain amount of time each year.

Can I Purchase a Home Abroad With Equity Release?

Yes, you can buy a second property anywhere in the world, provided it is approved by your equity release lender.

Some homeowners prefer to have a holiday home in the UK as they can get to it more easily and it is therefore cheaper. They may also be more inclined to stay near home due to the pandemic, as there is still less stability surrounding international travel.

However, others have always dreamed of owning a home in Europe or elsewhere, and they find that this is more exciting and provides more enjoyment than a holiday home in the UK.

They may also have family abroad, so this is the perfect opportunity for them to spend more time with their loved ones.

Please call our 24-Hour Helpline: 0330 058 1579

Alternatives to Using Equity Release to Purchase a New House

If you are not interested in a buy-to-let scheme or a second home plan, do not fret, as there are other routes you can take that do not involve releasing equity.

1. Remortgaging your home

You could remortgage your home to receive the funds to purchase a second home.

This process will involve many different fees, including legal fees, valuation fees, and administration fees.

However, not everyone is eligible to remortgage their home, and some people find that remortgaging would not provide them with the money they need to buy a new property.

To find out whether this is the case, you could use a mortgage calculator such as the one on the Barclay’s website (4).

In this case, decide whether equity release would be more beneficial, or perhaps think about finding a more affordable property in a country with a cheaper property market, such as Spain.

2. Downsizing

You could also move to a smaller home, which would involve paying out less on a mortgage and bills. This would improve your financial situation and allow you to spend time saving your money for a second home.

However, this would most likely be very stressful as you would have to go through the complicated process of moving house, which is taxing at the best of times, with the knowledge that you would soon be dealing with the stress of purchasing a new property.

3. Taking out a regular loan

Finally, there is always the option of taking out a traditional loan that has to be paid back by a certain date, rather than when your property is sold.

However, if you do this, you would need to go through affordability checks, and you would need to be confident that you could repay the loan by the date that was proposed.

Please call our 24-Hour Helpline: 0330 058 1579

How Much Money Could You Release To Purchase a New Property?

Until we know your personal details, we cannot give you an accurate estimate of the amount you could release. However, if you input your details here, we can provide you with a tailored quote.

For a more general idea, tell us your age, property value and property type on our free equity release calculator, and you will receive an estimate of the amount of funds that may be locked up in your property, ready for you to access through an equity release scheme.

Discuss Your Options With Equity Release Warehouse

We are aware that equity release isn’t always easy to understand, especially when we get into the specifics of equity release plans.

This is why we urge you to speak to us over the phone so that we can guide you through the entire process and explain how you can get started with releasing equity.

As we have outlined, it is possible to release equity to purchase a new property, whether that be for a second home, a holiday home, or a home that you can rent out to generate income in retirement.

To learn more about the details of these plans, head to this page before getting in touch with us.

On the other hand, you may have come to the conclusion that you would not like to use your equity loan for a second property, but you are still interested in equity release.

If this applies to you, still get in touch as we can introduce you to different plans and find one that’s right for you.

Many plans do not specify what you should spend the money on, so you are free to spend it on whatever would help you the most. So, how do you choose between them?

Different schemes offer different benefits including low interest rates, lump sums, voluntary repayment, and other things that make them stand out in the equity release market.

We want to reassure you that by contacting us, you are not stating that you are ready to release the money that is tied up in your property.

We are aware that this is a big decision that you must work through with an equity release adviser, a financial adviser, an equity release lender, and a solicitor.

However, we would be delighted to play a part in the decision-making with you, even if you eventually decide that equity release is not something you would like to get involved with.

With each client that we talk to, we make sure to discuss the pros and cons of equity release in great detail, so you are as informed as you can be about this great scheme.

References

[1] Lifetime Mortgages for Investment Properties, Buy to Lets and Second Homes https://www.kisbridgingloans.co.uk/equity-release-lifetime-mortgages/lifetime-mortgages-for-investment-properties-buy-to-lets-and-second-homes/[2]

[2] BUY-TO-LET MORTGAGES FIND THE RIGHT MORTGAGE FOR YOUR PROPERTY Compare mortgage rates from across the market https://www.moneysupermarket.com/mortgages/buy-to-let/

[3] Equityrelease: October 2011 a way of releasing money from your home https://www.rbkc.gov.uk/media/document/equity-release

[4] How does remortgaging work? Finding a new mortgage lender https://www.barclays.co.uk/mortgages/remortgage/remortgage-process/