Can I Use Buy to Let Equity Release to Purchase Another Property?

Estimated reading time 6 minutes

For many landlords that are seeking ways to optimise their property portfolios through expansion to increase rental income and benefit from appreciation of their property holdings without selling Buy to Let Equity Release is an option worth considering.

What is Buy to Let Equity Release?

Buy to Let Equity Release is a financial tool that provides landlords with the ability to tap into the equity tied up in their existing properties. This approach involves the process of releasing equity, providing landlords with freed up capital that allows them to increase their property portfolio, undertake home improvements, or incorporate them into their retirement income planning.

Be aware that equity release is a different term to releasing equity.  Equity release refers to a specific product type aimed at people in later life and is a specific way to release equity for homeowners aged 55 or over while releasing equity can simply refer to unlocking some of the capital in your property. For landlords aged 55 or over they can release a portion of their rental property’s value as a tax-free lump sum or regular income without the need for monthly repayments. The loan is not called a lifetime mortgage but does have similar features. It can be fully repaid upon the property owner’s death or partially repaid during the loan term.

Here are some of the most popular questions landlords often have about Buy to Let Equity Release:

How Can Equity Release for Buy to Let Help Me Expand My Property Portfolio?

One of the primary benefits of Buy to Let Equity Release is that it provides landlords with the capital needed to purchase additional rental properties. By leveraging the equity in existing properties, landlords can grow their property portfolio without needing substantial savings or taking out traditional mortgages.

How Much Equity Can you Release?

The maximum amount of equity you can potentially release from a buy-to-let property through a lifetime mortgage equivalent is up to 44% of its value. But the actual amount you can release from your buy to let it will depend on a number on the lenders criteria.

What Are the Eligibility Criteria for Buy to Let Equity Release?

Eligibility for Buy to Let Equity Release typically depends on factors such as the value of your existing properties, your creditworthiness, how much equity you have built up, your age and the tenancy.  Lenders may have varying criteria, so it’s essential to explore different options. Those options maybe limited as only a handful of providers offer equity release on investment properties, and the criteria for qualification can be more stringent.

How Does It Impact My Existing Properties?

Landlords often wonder how Buy to Let Equity Release will affect their current rental properties. While the equity is used as collateral, the properties themselves are not typically affected. The cash flow from your existing properties may change slightly due to the associated interest costs.

How do Buy-to-Let equity release mortgages work?

Your lender will put a charge on your Buy-to-let investment which then allows you to access a portion of the equity you have built up either through a lump sum or monthly instalments. You do not have to make monthly repayments during the loan term, as the interest can be rolled up and added to the total debt, with repayment only due upon the last surviving borrower’s passing or entry into long-term care. Some products even offer the flexibility of making capital repayments during the term.

What Are the Tax Implications?

Good news, equity release is not taxable, there is no direct tax to pay on the money you receive from an Equity Release plan. Whilst landlords are understandably concerned about the tax implications of Buy to Let Equity Release released equity is typically not considered income and, therefore, not subject to income tax. the equity release is also completely free of capital gains tax. You must bear in mind though that if you obtain any interest on your savings as a result of the equity you release, you may be required to pay tax on this, so it is always a good idea to consult with a financial advisor.

Can I Use It to Renovate or Improve Existing Properties?

Some landlords may consider using the released equity to renovate or improve their existing rental properties by adding a new kitchen for example. This can potentially increase the properties’ value and rental income, making it a viable option for those looking to enhance their portfolio.

Exploring Alternatives to Buy-to-Let Equity Release:

While Buy to Let Equity Release offers is one strategy landlords can adopt there are alternative options.

Standard Remortgage:

You could consider a standard remortgage, these deals however are far from “standard” and can vary widely. If your rental property has substantial equity, you can consider remortgaging to release a lump sum. Alternatively, you may opt to refinance with a similar Loan-to-Value (LTV) ratio but at a better interest rate to reduce monthly costs.

Buy-to-Let Further Advance:

A straightforward option is to approach your current mortgage lender and request an increase in the size of your mortgage, to release the additional funds. While this approach will tie you to your lender’s interest rates it can be a relatively effortless way to access the lump sum.

Second Charge:

Similar to a further advance, a second charge involves securing an additional loan on the property. However, this loan operates independently of the primary mortgage and is secured against the property’s equity.

Selling the Property:

While selling a property may be viewed negatively in the context of residential homeowners looking for equity release, it presents a more straightforward and emotion-free choice for landlords. If the property holds a favourable market value, you can pay off the existing buy-to-let mortgage and access any surplus funds for yourself.  You will be forfeiting the rental income, but you will also be relieved of the administrative and maintenance responsibilities associated with property ownership.

How Can Gaffsy Help Landlords?

Gaffsy understands that landlords sometimes need to sell a buy-to-let property or liquidate their property portfolio to pay off their buy-to-let mortgage and access funds.

Are you a landlord looking to sell your flat fast and secure a guaranteed sale? If so Gaffsy has you covered, our we buy any house approach, sees us purchase properties in any condition and under any circumstances. Whether you need to sell a house fast in London, or deal with challenges like selling a flat with cladding, selling a property with squatters, or selling a property with a short lease, we assure you a sale on your terms.

We can close deals in a matter of days and ensuring you have the funds when you need them. Our process is seamless and fee-free, making what could be stressful hassle-free. 

If you want to sell your buy to let property or sell your property portfolio or part of your portfolio contact Gaffsy, a market leading cash house buyer, today for your no-obligation, free cash offer and unlock the financial flexibility you are looking for.

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