Equity Release may be used to purchase a new home, holiday home, taken from a buy-to-let property and even from your home where an element is B&B or Airbnb.
In this guide, you will learn:
Picture this. You would like to move to your forever home, but it is out of your budget. You have an existing mortgage which you would like to pay off, rather than borrowing more, and having larger monthly payments to commit to at this time. Using equity release for purchasing allows you to clear your outstanding mortgage while also obtaining additional funds with which to purchase your new property.
The property sale, mortgage repayment and new property purchase are all finalised at the same time. Cash from your current property along with the equity you release from the new home will give you enough to purchase your new home. What's more, this is without having to make any monthly payments if you do not wish to.
You may, however, wish to consider paying all or some of the interest off, which is an option for you, either with regular monthly payments or ad-hoc voluntary payments. Our advisers will be happy to discuss payment options with you to ensure you have the best plan available for you.
We have created an equity release purchase calculator which gives you an idea of the maximum amount you could spend on your new property purchase.
Would you like to find out how much you could afford to spend on a new home?
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Single or joint purchase:
Purchase property type:
Once you have found the property you wish to buy, you sell your old property, clear the mortgage and move into your new home. It will be your new home that will then have the equity release mortgage on it. The process is very similar to a property purchase without equity release. The result is that you have the new property you desire without the need to make monthly mortgage payments.
See the below example property purchase made with equity release:
Mr Smith aged 61 and Mrs Smith aged 60
Existing property value - £250,000
Outstanding mortgage - £35,000
When the property sells, they will have a net £215,000 of money.
Based on their ages, the maximum equity release they can achieve is 34% on a standard lifetime mortgage.
With an Equity Release purchase, they could buy a new property with a value of £325,000 (£215,000 + a £110,000 Equity Release mortgage on the new property).
So, they can go house hunting for a property valued up to £325,000.
Plus they know that they will own it and have no mandatory monthly payments to make. Of course, they can also look for a lower value property if they so choose.
If your dream is to buy a holiday home, either in the UK or abroad, you may wish to consider releasing equity from your primary residence to help with the purchase. This allows you to enjoy time split between your main home and your holiday home. You will need to bear in mind, however, that you will be required to still live in your primary residence for at least six months of the year. You will also need to consider that you will probably be looking to purchase the property outright so that there is no additional standard mortgage requirement.
If purchasing a holiday home in the UK, stamp duty will also be a cost consideration, depending on the value of your second home. You can find more information on stamp duty for second homes by visiting hoa.org.uk/advice/guides-for-homeowners/i-am-buying/stamp-duty-for-second-homes/
If you are thinking of buying abroad, you will also have currency exchange rates along with local laws and regulations to take into account. Also, for both the UK and abroad, remember you will have solicitors' fees to pay.
A buy-to-let property is one that is not occupied by the owner and is let-out under an Assured Shorthold Tenancy Agreement (AST).
Whether you have a single buy-to-let property or you have an established property portfolio, you may be able to use equity release as a way to raise funds. As part of the application process, you will be asked to produce your AST agreement and your details of your property portfolio.
As a landlord, you may have considered selling your buy-to-let property to raise funds that you may need for retirement. However, this potentially incurs capital gains tax (see www.gov.uk/tax-sell-property). Instead, you can look at obtaining the money via equity release instead.
Taking a tax-free lump sum from your buy-to-let property means that your rental income will be unaffected. The cash that you release may be used to invest in further properties, or for general lifestyle needs as required. Along with that, there is the option to release funds from several buy-to-let properties if you have them.
The percentage that you may release (loan to value amount) for buy-to-let properties will differ slightly to those for equity release from your main home. For buy-to-let properties, the maximum amount you may borrow starts at 19% at age 55 and increases to a maximum of 44% from age 80.
The basic process for taking equity release on a buy-to-let is the same as your residential property. Any mortgage on the property or properties must be paid off as part of the process, and then the additional funds will be paid into your account.
Until recently, equity release has been very limited on properties where you have a member of the family, a tenant, or a carer living in a self-contained annexe. The same is true for properties where a part is for B&B or Airbnb.
Recent changes and updates to lending criteria mean that:
- Homes where one or two rooms within the main home or a self-contained part are used for B&B and holiday lettings (including Airbnb). Lending is now possible providing a guest staying does not extend beyond 30 consecutive days, and no more than 50% of the bedrooms are used commercially.
- Homes with a tenant – Equity release plans are now available on properties with a tenancy in a self-contained part of the property. Whether you are renting out an annexe, a flat or a cottage in the grounds, this is now possible with a suitable Tenancy Agreement.
- Homes with a live-in carer – Properties with an annexe or self-contained accommodation for a carer are now also considered for equity release.
Even if you have been refused equity release in the past, regular changes and updates mean that more options are now available. So why not see if you can get equity release today?
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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