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Equity Release Supermarket News Can I Use Equity Release to Buy a Second Home?
Can I Use Equity Release to Buy a Second Home?
Equity Release Supermarket News Can I Use Equity Release to Buy a Second Home?
Using Equity Release to Buy a Second Home

Can I Use Equity Release to Buy a Second Home?

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Mark Gregory
Checked for accuracy and updated on 31 October 2023

Buying a second property is something many of us dream about. Whether it means family days by the beach or having another asset to leave to your children, having a second base is something many families aspire to.

It’s perhaps for this reason that some people are using an equity release scheme to buy a second home. An equity release scheme allows those aged 55 and over to either borrow against their main residence, or they can use an equity release scheme to help part-fund the purchase their new second home property.

As older people find it difficult to remortgage or secure further advances on their homes, many are choosing to unlock equity from their main residence as a quick and easy way to raise these type of funds.

Interested in buying a second home? In this article, we discuss how this can be achieved with the help of equity release.

How much equity can I release to buy a second property?

This first step in determining how much you can borrow to buy a second property is to understand the value of your current home - your primary residence. An easy way to do this is to use a website like Rightmove, where you can search for the sale price of similar homes in your area. From this value, you can subtract the outstanding amount of your existing mortgage (if you have one), which will then show you how much ‘equity’ you have. You can then use this figure to determine how much you can theoretically borrow.

With equity release, you can borrow up to a maximum of 55 per cent of the value of your home. Any mortgage currently outstanding would also need to be repaid as you can only have one mortgage on your property with equity release.

So, if your property has a market value of £300,000, based on this maximum loan-to-value figure, you could release up to £165,000. While you can have an existing mortgage and take out equity release, it must be repaid from this money you release.

It is also worth noting that properties valued at less than £70,000 do not qualify for equity release.

There is a range of calculators that are free to use at, which will give you an idea of how much you can borrow.

However, we always recommend speaking to one of our advisers before you start looking at potential second homes.

What are the costs associated with buying a second home?

Firstly, there are the costs associated with taking out equity release. These include a fee for the financial advice you receive (you cannot take out equity release without advice) and the lender may also charge you an application and valuation fee. You must also consider your solicitors’ fees.

Then there are the costs associated with buying your second home, such as stamp duty, which is tiered depending upon the selling price:

  • 3% up to £125,000
  • 5% between £125,001 and £250,000
  • 8% between £250,001 and £925,000
  • 13% between £925,001 and £1.5m

If you are taking out equity release and buying a second home at the same time, you may be able to make savings on solicitors’ costs.

If you currently claim any means-tested benefits, such as council tax support or pension credits, these may be affected by taking out equity release. Your Equity Release Supermarket adviser will be able to talk through all the details with you.

What kind of properties can I buy with equity release?

Many people tend to buy a holiday home using their equity release money; however, it’s also common for retirees to buy a property for their children or another base for their family.

For legal purposes, homeowners must either be the sole occupants of their second home or allow it to be let out for a maximum of four weeks consecutively. The homeowner must also use the property for a minimum of four weeks a year, and should have no formal agreements or Assured Shorthold Tenancy in place.

Equity release can also be used to provide a deposit on other properties unrelated to the buyer, such as for helping a loved one get on the property ladder.

If you are concerned about interest accruing over time and affecting the inheritance you leave, with many equity release plans you are able to repay the interest monthly or on an ad-hoc basis using voluntary payments.

Increasingly, equity release is being used to fund first-time buyer deposits for children, who in turn repay the monthly equity release interest – to minimise the impact on their future inheritance.

Another option is to purchase a buy-to-let property (see below) and use the extra rental money to supplement your pension pot.

I already have a second property. Can I use this for equity release instead?

Yes, you can.

This may be a consideration if the outstanding mortgage on your main residence is too large and cannot be repaid with the money you borrow through equity release, (which is one of the conditions of equity release). Or, perhaps you simply don’t like the idea of taking out a lifetime mortgage on your main residence.

The lender, Retirement Advantage, offers plans to allow you to borrow against a second home or holiday home and they can be tailored to suit your requirements.

Can I use buy-to-let equity release to buy another property?

Yes, you can.

Retirement Advantage introduced their ‘Landlord Options’ range of equity release plans in August 2017 to enable landlords to borrow against their property portfolios. (Usually, equity release can only be taken out against the home you live in – your primary residence.)

These schemes could help the over 55s to develop their BTL portfolios and ultimately benefit their retirement planning.

As ever, we recommend speaking to one of our experienced advisers before considering buy-to-let equity release.

How do I buy a property abroad with my equity release?

With equity release, you can use the money for whatever you want. So if you’d rather buy a home in the sun with your funds – you are free to do so.

You should also factor in currency exchange costs when transferring money abroad, so speak with a foreign currency specialist if you would like to lock in favourable exchange rates while your property deal completes.

You will also need to appoint a solicitor in the location where you want to buy your home overseas. Obviously, there will be costs associated with this, but they can advise you on the legal process of buying property in their country.

To find out more about how you can use equity release to buy a second home, holiday home or buy-to-let property, please contact the Equity Release Supermarket team on Freephone 0800 802 1051, or email [email protected].

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