Using Equity Release to Buy a Second Home

The Secrets of Using Equity Release to Buy a Second Home
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You over 55 & Keen to Buy a Second Home? Did You Know That Your Primary Residence Could Possibly Fund This Purchase? Discover More Here…
TABLE OF CONTENTS

Equity Release to Buy a Second Home


Imagine owning that dream holiday home in Paris?

Or buying your children a family home for your grandkids?

Well, equity release could make this dream a reality and we’ve got the secrets right here.

Through this article, you’ll discover:

  • The process of using equity release to buy a new home.
  • What you should consider before using equity release to buy a second home?
  • What costs are associated with equity release?
  • How to release equity to buy a second home?

As a leading equity release information portal, we at EveryInvestor strive to offer the latest news covering this expansive topic.

We therefore analysed the market to discover the pros and cons of using your equity released to purchase a second home. 

Let’s dive into it!

Before You Start Reading….

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4 Reasons for Buying a Second Property

The reasons for buying a second property include having a holiday home, setting up a home for your loved ones, buying to let, or purchasing a home abroad. 

Remortgaging your home to buy another property is a standard option for those wishing to invest in buy-to-let or buy a second home to raise funds.

Here are a few additional reasons individuals choose to buy a second property.

Holiday Home in the UK

Equity release is commonly used for buying a holiday home in the UK to use as a summer retreat or a weekend retreat.

For a Dependant or Family Member to Live In

Buying a second house for your loved ones allows you to continue caring for them after they have flown the coop.

Buy-To-Let 

Purchasing a second home as a buy-to-let investment may provide a beneficial supplementary source of income in the form of rent.

Buying a Second Home Abroad 

Buying a house overseas may be more difficult to finance than buying in the UK.

Remortgaging vs. Equity Release 

The difference between remortgaging and equity release is that:

  • With remortgaging1 you’ll switch mortgages for lower rates.
  • With equity release, you can use the money unlocked to take out a mortgage on a second property. 

Here are more differences between remortgaging and equity release for homeowners to keep in mind!

Remortgaging to Buy a Second Home

If you’re looking to use remortgaging to buy a second home, keep in mind the amount of equity you may borrow with a remortgage is determined by how much you can afford to pay back each month.

Using Equity Release to Buy a Second Home

Using equity release to buy a second home can dramatically diminish, or even deplete, any inheritance you wish to pass on.

Whereas keeping up repayments on a refinance will have no impact on the value of your estate.

How Does Equity Release Work When Buying a Second Home?

The equity release process of buying a second home works the same as when you first bought a home.

Even if you already own a house, you will have to go through the same process as if you were a first-time homebuyer.

The bank will have to review your credit record2 again, as it did the first time.

What to Consider When You Use Equity Release to Buy a Second Home

You must consider the following when using equity release to buy a second home: 

Property Types

The property types that you may potentially acquire with the cash raised through a remortgage are as follows:

  • Buy-to-let properties
  • Buy-to-lets
  • Holiday lets
  • Holiday homes and second homes
  • Commercial property3

Personal Circumstances

Your personal circumstances, such as your job status, income, and credit history, will influence if you qualify in purchasing a new home.

Additional Costs/Factors to Consider When Buying a Second Home with Equity Release

The additional costs and factors to consider when buying a second home include second-home stamp duty and capital gain tax.

Second-Home Stamp Duty

Second-home stamp duty must be considered when using equity release to buy a second home. 

If you already own a property, you must pay a higher stamp duty charge when buying a second home in the UK.

You will typically have to pay 3% above the normal rate.

Capital Gains Tax on Second Home

When using equity release to buy a second home, there is no capital gains tax (CGT) to pay when you’re buying or selling your main home. 

The capital gains tax will apply when you eventually sell your second home. 

How Much Equity Do I Need to Buy a Second Home?

The amount of equity release you’ll need to buy a second home will be determined by:

  • The current worth of your home.
  • Whether you still have a mortgage outstanding.
  • The value of the new property.

Do I Qualify for a Second Home Equity Release Scheme?

To determine if you qualify for a second home equity release scheme:

  • You must be between the ages of 55 and 90.
  • The value of your home must be between £70,000 and £6 million – keeping in mind, certain lenders may consider higher-priced houses.
  • You must buy the house cash or qualify for a mortgage.

How to Release Equity to Buy a Second Home?

To release equity to buy a second home, you must first contact a financial advisor to discuss your options.

If you’re deciding if you should release equity to buy a second home, consider these 2 factors:

Taking Equity Release From Your Home When a Part Is Used for B&B/Airbnb

Previously, equity release was restricted to properties with a self-contained annexe occupied by a member of the family, a tenant, or a carer.

The same is true for B&B and Airbnb accommodations.

Some of the most recent modifications and revisions in lending criteria that you should be aware of are as follows:

  • Lending is now available provided a tourist stays for no more than 30 days and takes up no more than half of the bedrooms.
  • You may now release equity from a house by renting out a self-contained component of it, such as an annexe, apartment, or cottage in the grounds. You can rent out an annexe, an apartment, or a cottage on the premises with the proper Tenancy Agreement.
  • Properties with a live-in caregiver and an annexe or self-contained carer accommodation are now eligible for equity release.

Purchasing a Holiday Home Using Equity Release

If you want to use equity release to buy a vacation home in the UK or overseas, your primary residence can help with the purchase. 

Why, you may ask? 

This permits you to divide your time between your primary residence and your vacation residence.

You must, however, keep in mind that you’re required to continue to live in your principal house for at least 6 months of the year.

Common Questions

Will Equity Release Allow Me to Pay Cash on a Second Property?

Will I Need to Make Monthly Payments on My Equity Release Loan for a Second Home?

What Happens to My Second Home Purchased With Equity Release When I Die?

In Conclusion

If you’re unsure if equity release or remortgaging is suitable for you, consult with a financial adviser.

They can then explain which solutions are available to you and how much they are likely to cost. 

Your dream financial future could be a few short steps away.

How Much Can You Release?

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.