HomeBuy to LetReleasing equity from a buy to let

Releasing equity from a buy to let

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HomeBuy to LetReleasing equity from a buy to let

Releasing equity from a buy to let

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Last reviewed on 13th October 2023 by Martin Alexander (Mortgage Advisor)

If you own a buy to let, equity release can allow you to access capital in the property. Using assets for financial leverage is a common strategy to expand property portfolios. Furthermore, you may choose to release equity for several other reasons.

There are many strategies that landlords can use to leverage assets. The best approach is typically based on why you want to release equity in the first place.

This guide will explain how to release equity through a buy to let property. We’ll also explain certain factors to consider before deciding on whether equity release is a suitable option.

What is buy to let equity release?

Releasing equity with a buy to let is a remortgage that releases capital from a buy to let property. Furthermore, releasing equity from a buy to let property is pretty simple, and there are hundreds of lenders available.

The equity you release can be used for several scenarios. You can buy another property or use the funds to make home improvements. Furthermore, you may be thinking about retirement or fancy a dream holiday.

Is this the same as equity release?

Although ‘equity release’ is often referred to as releasing equity, they’re different terms for entirely different scenarios. Equity release refers to lifetime mortgages for applicants over 55 for retirement purposes.

The number of lenders offering buy to let equity release for over 55s is limited, but it is possible. Most equity release lenders require residential property as part of their criteria.

Should I remortgage my buy to let to release equity?

Many landlords remortgage their investments and release equity to buy additional property. Funds can also be used for maintenance and refurbishment costs if needed. It’s a smart strategy, as the property essentially pays for itself.

Releasing equity with a remortgage is perhaps the most popular method used by landlords. You may be able to find a better deal than your current mortgage and release equity by switching lenders.

Read more: How to release equity with a remortgage

Will I be eligible?

Some lenders have restrictions on what the funds can be used for, so bear this in mind. You’ll also need equity in your property, with most lenders allowing you to borrow up to 75% of the property value.

If you own a property portfolio, you may be eligible for a portfolio mortgage. This is where your entire portfolio converts to a single mortgage. As a result, you’ll have one monthly mortgage payment. You can also release equity across your entire portfolio in the process.

Alternative ways of releasing equity from a buy to let

If you’re not quite ready to retire and don’t wish to remortgage, there are alternative ways of releasing equity from your buy to let.

A further advance from your lender

You can apply for a further advance from your current lender. A further advance can be easy to obtain as you already have a relationship with your lender. However, you may still undergo mortgage affordability checks and a credit check. Nonetheless, if your mortgage payments have been on time each month, you shouldn’t have any issues.

Each lender is different, so do make an enquiry before you make a decision. Shopping around and checking other available rates’s also a good idea. Taking a further advance may not make sense if you can remortgage and switch to a better deal. You may even be able to release more equity by doing this.

Releasing equity with a secured loan

You’ll also have the option of using a secured loan to release equity. Secured loans can be referred to as second charges. This is because your existing mortgage will stay as it is, with your original lender having the first charge on the property.

By taking on a secured loan, your new lender would place a second charge on the property as security for the loan. Getting a secured loan on a buy to let can be straightforward, especially if you have ample equity in the property. Secured loans can be useful when you want to keep your existing mortgage but don’t want a further advance from the same lender.

Rates for secured loans can be slightly higher than mortgages, so bear this in mind. You’ll also pay two mortgages instead of one, so consider the additional expense before committing to a deal.

ask a mortgage broker

Buy to let equity release with a lifetime mortgage

A lifetime mortgage is a form of equity release available to those aged 55 or over. Although this form of equity release is usually on the home you live in, it’s also possible on a buy to let property, but it can be difficult.

Retirement doesn’t offer many financial options, so lifetime mortgages have their place in the market. Buy to let investment can also provide you with an income during retirement. Equity release can further leverage your existing assets so you can enjoy the equity you’ve built over the years.

What are the pros and cons of buy to let equity release?

The advantage of using a buy to let property for equity release as opposed to your primary residence is that you’re not using your own home as collateral.

The downside is that your primary residence may be worth more than your buy to let. This means you may not be able to borrow as much from a buy to let as you would using your home.

It’s also much easier to find an equity release lender for a property you live in than a buy to let property. Using a lifetime mortgage on a buy to let property would work similarly.

Your equity release provider will place a charge on your buy to let, much like all regular mortgage lenders do. In return, lenders will release equity from your property either as a lump sum or monthly payments.

How much can I borrow?

The amount you’re able to borrow will depend on many factors. The most significant factor is the amount of equity you have in the property and its worth.

The amount you can borrow through equity release will depend on:

  • Your buy to let property value
  • The amount of equity you have in the property
  • Your personal details (age, health, lifestyle)

The maximum amount you can borrow is 60% of the property value. This is usually for equity release on a residential property and not a buy to let. The amount of equity you can release on a buy to let property is likely to be less.

If you have past or present medical conditions, you may be able to borrow more than someone who hasn’t had any medical issues. The amount you can borrow usually increases with your age.

Speak to an expert

There are multiple ways to release equity. Furthermore, there are hundreds of lenders, each offering a varied product range. So, how do you decide which form of equity release is right for you? In addition, how do you find the most suitable lender that will say yes?

Our advisors specialise in all types of equity release and buy to let mortgages. Whether you’re approaching retirement or want to release equity, using an advisor can help your application.

Some lenders are strict on how you choose to spend your funds. That’s why it’s necessary to have a plan for the equity you will release before applying. This will also give our advisors an indication of which lenders are suitable and which to avoid.

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About the author

Martin Alexander
Senior Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.