Can I release equity on a property that I rent out?

Reports show that a tenth of landlords reaching retirement age expect rental properties to provide their biggest source of income during their pension years. But when it comes to freeing up cash that’s locked into these properties, can these landlords also consider equity release?

The simplest answer is, not as a rule. Where most equity release companies are concerned, you can’t release equity on a property you rent out – unless you plan to move into it as your main residence. Even then, you may need to have lived in it for a period of time to qualify for equity release on it. Conversely, if you stop living there, the lender may force you to sell the home and repay the loan – in the same way that the debt becomes repayable on your own main home if you move into long⁠-⁠term care. If you want to release cash from the value of a buy⁠-⁠to⁠-⁠let property, one option is to re⁠-⁠mortgage it.

How to release equity on buy⁠-⁠to⁠-⁠let properties

While equity release is generally not an option for buy⁠-⁠to⁠-⁠let landlords, there are specialist plans out there. A buy⁠-⁠to⁠-⁠let equity release plan enables a landlord to raise funds on an investment or leasehold property, that’s not occupied by themselves.

There are only a few lenders who offer this type of plan and there are more restrictions than with standard lifetime mortgages. For example, the property must be let⁠-⁠out under an Assured Shorthold Tenancy Agreement and family members can’t be tenants.

Worth noting…

  • The usual lifetime mortgage benefits apply to these plans – fixed rates of interest and no payments are required – but repayments can be made up to 10% of the amount raised.
  • The loan – and all outstanding interest and charges – is usually repaid from the sale of the property when landlord (or the last surviving borrower) dies.
  • The beneficiaries can also choose to repay the loan without selling the property, so they stay in full ownership of the property until it’s sold and they receive any amount left over.

Using equity release to buy another property

If you’re aged 55 or over, you may also be able to use equity release to help buy a property. This could be a holiday home, second home or new home, whether you use the extra money to fund the moving costs or cover a shortfall between selling one home and buying another.

Worth noting…

  • The equity release is applied for on the new property – and the purchase and equity release is finalised at the same time.
  • If you’re buying a second home, you’ll need to live in your main home at least six months a year.
  • If you want to purchase a buy to let property, you’ll need to find a lender to support this, as not all do.

If you have an existing lifetime mortgage in place already, you could potentially transfer it to the new home and even borrow more money at the same time, if required. This would be subject to the lender’s approval of the new property.

Equity release may involve a home reversion plan or lifetime mortgage which is secured against your property and will reduce the value of your estate and impact funding long⁠-⁠term care. To understand the features and risks ask for a personalised illustration.

We provide initial advice for free and without obligation. Only if your case completes would our advice fee of £1,895 be payable. Other lender and solicitor fees may apply. Equity released, plus accrued interest to be repaid upon death, or moving into long⁠-⁠term care.