Rachel Lacey
Tim Leonard
Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.
Releasing equity to buy another property may be an option if you’ve owned your home for a while and want to buy a second home. According to Nationwide, average property prices in the UK in early 2024 were 46% higher compared with 10 years before. So if you’ve been on the property ladder for some time, your home could be a rich source of cash.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
Releasing equity to buy another property
Working out how much equity you have in your existing home will help determine whether you’re in a position to release funds to buy another. A simple way of estimating your house equity is to subtract the amount you still have left to pay on your mortgage from the current value of your home.
One way to unlock this equity is to sell up and downsize to a cheaper property, potentially leaving you with funds left over. The downsides are the various costs and effort involved with moving, and it may be that you don’t want to move.
If you’d rather remain in your current home, you may be able to remortgage and ask to borrow more than the amount you currently owe on your mortgage. Or if you’re an older homeowner, aged 55 or over, who either can’t or doesn’t want to remortgage, equity release may be an option to consider too.
Remortgaging to buy another property
If you want to remortgage to buy another home it will likely depend on you qualifying for a suitable remortgage deal and proving you’re able to afford to borrow more. Because of the additional borrowing, how remortgaging works in this instance is similar to taking out a mortgage for the first time.
How much equity can be released to put towards a second property will depend on the amount you’ve built up, the value of your existing property, and your finances generally, including your income, expenditure, debts and credit score.
You may be able to remortgage with the same lender you’re already with, but it’s usually best to check what other lenders are offering too.
» MORE: How to remortgage to release equity
What type of second property are you buying?
Whether you’re looking for a bolt-hole by the beach or investing in a buy-to-let, you’ll need to be honest with your lender about your plans for the second property. This will affect the type of mortgage you need on that property.
If you’re buying another property to rent out to tenants, you’ll need a buy-to-let mortgage. Or if you want to rent out the home you live in and buy a new place to call home, it’s called let-to-buy.
There are also specialist holiday let mortgages if you’re buying somewhere to rent out some of the year to holidaymakers and guests. But if you’re buying a holiday home, which only you, your family and your friends will use without charge, a second residential mortgage is usually what you need.
There are also often different expenses and tax implications involved with buying a second property. For instance, in England and Northern Ireland you may have to pay an extra 3% on top of the stamp duty rates usually charged when buying an additional property (in Scotland, you may have to pay an extra 6%). And rental income is liable for income tax wherever you are in the UK.
» MORE: See current mortgage rates
Using equity release to buy a second home
If you’re an older homeowner, using equity release to buy another property is a potential alternative to remortgaging to raise funds. It can sometimes be more challenging to get a mortgage as an older borrower, so if you’re aged 55 or over, a type of equity release called a lifetime mortgage may be worth considering. It may be possible to use the money released to buy a second home, a buy-to-let property to rent out, or a holiday home in the UK or overseas.
A lifetime mortgage allows you to release some of the equity in your property without having to make any immediate repayments. Instead, the amount borrowed is usually repaid by selling your home after your death or if you move into long-term care.
However, using equity release for any reason is never a decision to be taken lightly. Interest rates tend to be higher than for standard residential mortgages, and the amount you owe can quickly build up if you’re not paying the loan back as you go. And once your debt is repaid there’ll be less, or perhaps even nothing, in the value of your property to pass on as an inheritance. Your eligibility for some means-tested benefits may be affected too.
» MORE: Equity release or remortgage: Which is right for you?
Should I release equity to buy another property?
Releasing equity to buy another property, whether through remortgaging or equity release, may be an option if you own a good amount of equity in your home. However, the complexities and potential risks involved mean seeking mortgage advice is almost always going to be a good idea. The extra considerations that come with lifetime mortgages or any form of equity release means you will always need to get financial advice before using equity release to buy a second home, or for any other purpose.
» MORE: Getting mortgage advice
Image source: Getty Images
Dive even deeper
UK House Prices May 2024
House prices are changing all the time. So whether you’re moving home or buying for the first time, it’s a smart move to keep on top of the latest UK house price data, trends and housing market forecasts.
How to Remortgage to Consolidate Debt
Remortgaging to consolidate debt involves borrowing more on your mortgage to pay off other debts. This can make it easier to manage debt and could help lower your combined monthly debt repayments. However, more debt is secured against your home and you could end up paying more interest overall.
How to Remortgage to Pay for Home Improvements
Remortgaging to pay for home improvements or an extension may be an option if you have sufficient equity in your property and can prove to your lender a larger mortgage is affordable. Your income, outgoings and job status are some of the factors typically looked at when deciding whether you can afford a mortgage.