Equity release on buy to let properties

Learn more about buy-to-let equity release

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Equity release plans for retired homeowners are a respected financial package designed to make funds tied up in the home available for use.

It is important to understand the difference between Equity Release – an industry term that refers to a specific type of product; lifetime mortgages or home reversion plans, and releasing equity, which typically references a remortgaging of a property.

Can I get a lifetime mortgage with a buy-to-let property?

A lifetime mortgage is usually considered with a residential property, with specialist clauses in place to protect your interest and enable you to live in the property until you die.

However, a lifetime mortgage with a property you let out is also possible and at The Mortgage Hut we work with a range of specialist lenders that consider such applications.

Will my property be protected in the same way as equity release on a residential home?

Yes, your lifetime mortgage will work in an identical way for your second property as it would on your personal home. It will be paid off in full (including any accrued interest) upon your death and the property will be untouched before that time.

What happens to my tenants?

Sitting tenants are undesirable for equity release providers. When you die, it will be important to the lender that the property be sold without problem, and sitting tenants are able to exercise their right to remain in the property and can cause complications for sale.

For this reason, a lifetime mortgage for a let property can only be obtained if the property is:

  • Single occupancy only

  • Not sub-let in any way

  • With tenants with an assured shorthold tenancy agreement (AST) of less than 12 months.

Full disclosure of your tenants contract will be required as part of your application for a lifetime mortgage.

While you live, your tenants will be able to remain in the property but should you die, the provider will exercise their right of eviction to meet the terms of the equity release contract. You should inform any tenants of the situation so that they are not taken by surprise if you pass away.

How does the equity release work with my buy-to-let mortgage?

As part of the equity release, your buy-to-let mortgage must be paid off in full. Any remaining balance will then be passed to you for your use.

Unlike equity release on a residential mortgage, a buy-to-let lifetime mortgage releases you from the burden of monthly mortgage payments. You may end up with a smaller lump sum than the residential equivalent, but can now rely on regular additional income throughout your retirement.

An example:
Simon owns a second property valued at £280,000 that currently rents out for £1,050 per month. His buy-to-let mortgage is for £135,000 and costs him £573.75 per month.

He obtains a lifetime mortgage for £154,000 and pays back his buy-to-let mortgage in full. After the legal fees and other costs have been taken into account, Simon releases immediate cash of £18,200 and no longer has to make monthly payments to the mortgage company.

Other than regular agency fees and maintenance, Simon is free to enjoy the £1,050 income per month.

How much money can I release from my let property?

Buy-to-let equity release is only available for customers over 55. If any of the owners of a property are under this age, then a lifetime mortgage will not be possible.

The LTV (loan to value) ratio of a lifetime mortgage increase with your age. While it isn’t always pleasant to think about, the equity release provider is more willing to lend under the terms of a lifetime mortgage the shorter your expected life span – those who are older or have ill health will receive better deals than younger, healthier homeowners.

Buy-to-let lifetime mortgages are generally stricter with their terms than residential equivalents and you will be offered slightly smaller loans than you would on residential terms.

The rates will depend on the specific lender but will range between 9% LTV (at 55 and healthy) to 55% or more for people later on in life or those with poorer health.

Remember, you will have to pay off your current buy-to-let mortgage in full, so if the LTV of that interest-only loan is greater than the best deal you can find, a lifetime mortgage may not be an option for you.

We are experts with remortgaging and equity release and will work with you to get the perfect deal to suit. Our network of lenders is vast and includes many providers who work in the buy-to-let and equity release sector. Contact us today to see what kind of LTV deals we can get for you.

What other options are there to get equity from my buy-to-let property?

A lifetime mortgage is not the only option! Landlords tend to have more options available to them than those with only one residential home.

  • Remortgage

Rather than an Equity Release, why not just release equity?!

A standard remortgage, the deals you will get are anything but ‘standard’!) could be all the equity release you need. If your equity in the property (the market value of the property minus the outstanding mortgage value) is high, then you could remortgage to a larger LTV loan to release a lump sum, or refinance with a similar LTV but at a better interest rate to lower the monthly costs.

Unlike retired residential homeowners, as a landlord you can show regular income that will be used to make the monthly mortgage payments. As the property has been part of your portfolio for some time, your accounts will show how the property essentially pays for itself and a lender will be more than happy to consider this when looking at your level of affordability.

  • Buy-to-let further advance

This is a simple process whereby you go to your current mortgage lender and ask them to bump up the size of the mortgage to free you some extra cash. It ties you to their rates but can be a near effortless way to release tens of thousands of pounds.

  • Second charge

A second charge is similar to a further advance but forms a second loan secured on the property without interacting with the main mortgage, being secured against the level of equity.

  • Sell the property

When this option comes up for those looking for equity release on their residential home, it has a lot of negativity attached to it – the resident is being asked to downsize, move away from their friends and begin a new life in a new house.

For landlords, selling the property is a much simpler and emotion-free option. If the market value of the property is good, you will be able to pay off the current buy-to-let mortgage and release any additional cash for yourself.

Of course, your income from the property will now be gone forever, but you’ll no longer have the administration and maintenance of the house either.

It is when looking at selling the property, however, that the power of a lifetime mortgage really shows – with equity release you get to enjoy a boost in immediate cash thanks to the equity and keep the income coming in without anything to pay back!

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