What’s a Buy-to-Let Lifetime Mortgage and How Does It Work in 2024?

Are You Considering a Buy-to-Let Mortgage? Discover the Affordability Rules for Landlords and How Much You Can Borrow Using a BTL Mortgage. Find Out if It’s an Option for You.
  • Last Updated: 05 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • Buy to Let Equity Release is a financial product in the UK that allows property owners over 55 years to unlock the equity tied up in their rental properties without selling them.
  • It works by offering a loan against the value of your rental property, which is repaid when the property is sold, or upon your death.
  • The main risks and benefits include potential erosion of inheritance and tax implications versus improved cash flow and maintenance of property ownership.
  • Generally, to be eligible for a Buy to Let equity release plan in the UK, you need to be at least 55 years old.
  • Companies like Aviva, Legal & General, and Canada Life offer competitive plans, but it's advisable to shop around for the best deal.

If you are a landlord nearing retirement and exploring your options to secure your financial future, one possible consideration could be a Buy-to-Let Equity Release.

Equity release buy-to-lets allow landlords to access the value (equity) tied up in their rental properties while still benefiting from rental income—a practice known as 'equity release'. 

This approach offers borrowers the flexibility of the Buy-to-Let investment strategy.1 

In This Article, You Will Discover:

    What Is the Process for Buy to Let Equity Release in the UK?

    The procedure for engaging in a buy-to-let equity release in the UK typically begins with a valuation of your investment property to establish its market value.

    It's advisable to consult with professionals for an accurate assessment of your property's worth.

    Following this, the application for a buy-to-let equity release is made, which allows you to secure a loan with your property serving as security.

    In the UK, buy-to-let equity release schemes are designed with repayment strategies that consider the borrower's financial situation.

    These often include the interest-only lifetime mortgage, where only the interest is paid during the term of the loan, and the roll-up lifetime mortgage, where interest accrues and is added to the total loan amount.

    A key feature of these schemes is that the repayment of the borrowed amount, along with any accumulated interest, is deferred until the property is sold, the owner passes away or enters long-term care.

    It's important to review the terms of repayment carefully to ensure they are compatible with your long-term financial objectives.

    Every Investor's experienced team researched later-life lending and retirement planning for over 5 years to assist landlords in deciding if a BTL lifetime mortgage is suitable for freeing up retirement cash. 

    Before sharing any content, the Every Investor team puts it through rigorous fact cross-checking and compliance checks to ensure that you receive accurate information.

    For the same reason, we also update our articles regularly.

    So let’s not delay learning about the ins and outs of Buy-to-Let lifetime mortgages.

    What’s an Equity Release Buy-to-Let?

    An equity release Buy-to-Let is a type of equity release scheme available to landlords who want to access equity tied up in rental properties while retaining ownership and generating rental income. 

    Landlords aged 55 or over 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 can be fully repaid upon the property owner's death or partially repaid during the loan term, depending on the borrower's preference.

    Please note

    BTL equity release mortgages aren’t currently available to new borrowers in the UK*, but this may change as interest rates stabilise.

     *Accurate as of 11/06/2023.

    What’s the History of Buy-to-Let Equity Release?

    The history of Buy-to-Let equity release stems from the demand for flexible equity release tailored to landlords. 

    This product combines a traditional lifetime mortgage with the Buy-to-Let strategy, potentially facilitating capital growth and financial stability in retirement.2

    Canada Life's Over 55 Buy-to-Let Voluntary Select Option was an example of this type of mortgage, but this product has been withdrawn for the time being*.3 

    Take note:

    These products do not meet the Financial Conduct Authority's lifetime mortgage definition, meaning they may not provide the same level of protection.

    *Updated on 11/06/2023.

    How Does a Buy-to-Let Equity Release Scheme Work?

    A Buy-to-Let equity release scheme works very similarly to a normal lifetime mortgage, but it’s a loan secured against your rental property or portfolio of rental properties instead of your primary residence.

    Some unique features of these lifetime mortgages include:

    • Neither you nor any of your relations can live on the property.4
    • The property must be let out under an Assured Shorthold Tenancy (AST).5
    • The property can’t be sublet.6

    Other features and requirements are shared with other lifetime mortgages. 

    These include:

    • There are no monthly repayments; instead, interest accumulates and is repaid, along with the original loan amount, upon the property's sale or the landlord's death. 
    • Any existing mortgage balance must be settled using the funds generated from the new equity release mortgage. 
    • Cash can be released as a lump sum or through an initial lump sum with a cash drawdown option for accessing additional funds when needed.

    Make sure you understand your provider’s terms, as these may differ between lenders. 

    What Should I Consider Before Applying for a Buy-to-Let Equity Release?

    What you should consider before applying for a Buy-to-Let equity release is, firstly, that this product isn’t as freely available as lifetime mortgages.7

    Other considerations to keep in mind: 

    • Some providers have temporarily withdrawn their BTL lifetime mortgages because of the current mortgage climate.8 Speak to an equity release broker or advisor to find out if there are any BTL options currently available to you.
    • Not all property types may be accepted, and the loan-to-value (LTV) ratio could be lower (around 44%, according to Saga).9
    • Interest rates on BTL mortgages may be higher than those on traditional lifetime mortgages.
    • Informing tenants about the mortgage can prevent surprises in the event of a property sale triggered by your death or other circumstances.

    Consulting an equity release broker is advisable to determine if a landlord mortgage is the best financial option for you.

    What Are the Eligibility Criteria?

    The eligibility criteria for Buy-to-Let equity release are similar to those of traditional lifetime mortgages.

    Let’s take a look.

    Property Type

    When it comes to property type, these lifetime mortgages are usually available for houses, flats, and maisonettes. 

    Providers generally prefer well-maintained properties made of brick and mortar on freehold land. 

    However, restrictions may vary among providers, and seeking advice from an equity release broker is recommended. 

    Minimum Age

    To qualify for this type of mortgage, the applicant (or the youngest person in a joint application) is typically required to be at least 55 years old, although some lenders may have higher age barriers.

    How Much Can I Borrow?

    How much you can borrow through a Buy-to-Let lifetime mortgage depends on various factors, including your age and the value of the property. 

    Lenders typically offer LTVs ranging from 20% to 50% of the property's value.

    What Costs Are Associated With Buy-to-Let Equity Release?

    The costs associated with the Buy-to-Let equity release include various fees that should be considered.

    These may include:

    • Application fees, which may be waived or added to the loan amount.
    • Valuation fees for property appraisal conducted by an independent surveyor.
    • Legal fees for appointing a solicitor to handle the necessary legal paperwork and protect your interests.
    • Arrangement fees, also known as admin or completion fees, can often be added to the loan.
    • Advice fees are charged by financial advisors, though they may be waived in some cases.

    Specific amounts vary among lenders and transaction complexity, so it's important to compare costs and seek independent financial advice to fully understand all expenses involved in obtaining a Buy-to-Let lifetime mortgage.

    What Are the Interest Rates?

    The interest rates on Buy-to-Let lifetime mortgages vary among lenders and are typically fixed for the loan's duration, although the point’s moot at the moment, as no BTL lifetime mortgages are currently available to new borrowers*. 

    If additional borrowing is sought, a separate fixed interest rate will be determined for that portion. 

    Factors influencing the interest rate include the loan-to-value ratio and the landlord's age. 

    Did you know? 

    Generally, these mortgages have higher interest rates than residential mortgages.

    For example, when Canada Life offered BTL products, the advertised rate was 7,78% APR.10 

    It's crucial to consider the interest rates offered by different lenders and the impact of these rates on the overall loan cost.

    *Accurate as of 11/06/2023.

    What Are the Repayment Options?

    The repayment options for the Buy-to-Let equity release offer flexibility and convenience. 

    There are no monthly repayments required, and instead, the accumulated interest and loan amount are repaid upon the landlord's passing. 

    This structure allows landlords to benefit from rental income without monthly repayment obligations.

    However

    Some providers now offer the option to make repayments, such as up to 10% of the initial loan amount annually or monthly interest payments, if the landlord is able to do so.

    What Are the Advantages of Buy-to-Let Equity Release?

    The advantages of the Buy-to-Let equity release include having access to income in retirement and not being obligated to make repayments.

    Let’s take a look at some popular benefits:

    • Possible Regular Income: While cash released through a drawdown facility can provide a supplementary income to rental earnings, it's important to remember that interest starts accumulating with each withdrawal.
    • Tax Benefits: The cash released is tax-free, but consult with an equity release advisor to avoid potential tax liabilities.
    • No Monthly Repayments: Unlike traditional mortgages, BTL lifetime mortgages eliminate the need for monthly repayments, allowing landlords to maintain control of their cash flow and enjoy rental income.
    • Access to Cash: Landlords can tap into the equity tied up in their rental properties, providing funds for home improvements, debt consolidation, or other financial needs.

    While a BTL lifetime mortgage has its benefits, speak to a qualified equity release advisor to weigh up the potential risks involved in this type of loan.

    What Are the Risks of Buy-to-Let Equity Release Mortgage?

    The risks of a Buy-to-Let equity release mortgage include the effects of compound interest on your estate and the possibility of Early Repayment Charges.

    Here’s a look at some of the risks of this type of loan:

    • Interest Compounding: Without monthly repayments, the interest on the mortgage accumulates over time, resulting in a significantly higher loan cost compared to traditional mortgages. However, equity release providers affiliated with the Equity Release Council (ERC) offer a No Negative Equity Guarantee to ensure you never owe more than your home's value.11
    • Impact on Inheritance: Any kind of lifetime mortgage reduces the inheritance passed on to beneficiaries. The loan, including accumulated interest, must be repaid from the proceeds of the property sale upon the landlord's death unless alternative funds are used for repayment.
    • Early Repayment Charges: Repaying the mortgage early or selling the property before the mortgage term's end often incurs substantial early repayment charges. Consider the possibility of full repayment during your lifetime before opting for a BTL lifetime mortgage.
    • Costs Involved: In addition to interest charges, there are various associated costs, including application fees, valuation fees, legal fees, and arrangement fees. These costs should be considered in the overall financial decision-making process.

    Take your time when it comes to considering the pros and cons of this type of lifetime mortgage.

    Are There Alternatives to a Buy-to-Let Equity Release?

    Yes, there are alternatives to Buy-to-Let equity release that landlords can (and should) consider.

    These alternatives include things like:

    • Buy-to-Let further advance
    • Selling the rental property to release equity
    • Second charge
    • Remortgage12

    Each option has its advantages and disadvantages, so it's important to evaluate your circumstances and financial goals carefully before making a decision.

    How to Apply

    To apply, there’s a set of steps you’ll have to follow. 

    Here’s a summary of what these steps entail:

    • Prepare Documents: Gather proof of identification, property ownership, and current mortgage agreements. Make sure what your lender’s particular documentation requirements are.
    • Consultation: Meet with an equity release advisor to assess eligibility and discuss your needs. Explore alternative financing options and involve your family in the decision-making process.
    • Personalised Illustration: The advisor will provide a detailed summary of costs and loan details through a personalised illustration.
    • Application and Legal Process: Complete the application with the advisor's guidance. Appoint a solicitor and arrange an independent home valuation. Consult the solicitor for legal paperwork and the final decision.
    • Offer and Signing: The loan provider presents an offer through the solicitor. If you’re satisfied, sign the mortgage deed.
    • Fund Disbursement: The released cash is transferred to your solicitor, who then deposits it into your bank account.

    The application process typically takes several weeks, but complex cases may extend to months.

    Common Questions

    What is the Maximum Loan-to-Value Ratio for a Buy-to-Let Lifetime Mortgage?

    How Does a Buy-to-Let Lifetime Mortgage Affect My Tax Liability?

    Can I Apply for a Buy-to-Let Lifetime Mortgage if I Have an Existing Mortgage on the Property?

    What Happens if the Buy-to-Let Property's Value Decreases Over Time?

    Will I Be Able to Leave an Inheritance for My Loved Ones With a Buy-to-Let Lifetime Mortgage?

    Can I Switch to a Buy-to-Let Lifetime Mortgage From a Traditional Mortgage on My Rental Property?

    Can You Get a Buy-to-Let Lifetime Mortgage to Buy Another Property?

    Can I Get Several Buy-to-Let Lifetime Mortgages if I Have Several Rental Properties?

    Should I Pay Off My Buy-to-Let Lifetime Mortgage?

    Can I Sell My Property If I Have a Buy-to-Let Lifetime Mortgage?

    What is Buy to Let Equity Release in the UK?

    How Does Buy to Let Equity Release Work?

    What are the Risks and Benefits of Buy to Let Equity Release?

    Are there Age Restrictions for Buy to Let Equity Release?

    Which Companies Offer the Best Buy to Let Equity Release Plans?

    In Conclusion

    Buy-to-Let lifetime mortgages provide a way for UK landlords to leverage their rental properties for financial gain. 

    Though currently not as available as traditional lifetime mortgages, these products offer potential advantages such as tax benefits and access to cash. 

    However, potential risks and costs should be carefully considered. 

    If you’re interested in a Buy-to-Let equity release, consult a reputable equity release broker or advisor to find out what your options are in the current market.

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