Content Writer
Senior Equity Release Advisor
An equity release scheme is a popular way for homeowners over 55 to release some of the capital in their property and supplement their retirement funds. But can it be used for a buy-to-let property?
In this guide, we’ll clarify whether this is possible and look at all the viable alternatives you can consider.
Can you use equity release on a buy-to-let property?
Up until recently, buy-to-let properties, including large portfolios, were acceptable for using an equity release scheme. However, this is no longer possible due to the current volatility in the property market.
All equity release providers will now only allow your primary residence (or, in exceptional circumstances, a second home kept solely for private use) for this type of borrowing.
Another reason providers weren’t particularly keen on accepting applications for rental properties is the complications that can occur when the equity release loan agreement ends, and the property needs to be sold with sitting tenants.
This placed an additional onus on ensuring the tenancy agreements were flexible and fair to all related parties.
Find the best solution for your buy-to-let equity release
Can you remortgage to release equity from a buy-to-let?
Yes, you can, and in most circumstances, this is the most straightforward way to access money tied up in your buy-to-let (BTL) property.
For remortgaging purposes, the amount of equity you can release will depend on the lender’s maximum loan-to-value (LTV) limits and lending criteria for BTL properties, based on the forecasted rental income generated over and above the total mortgage repayments (typically between 125% and 145%).
How much equity can you release?
The table below illustrates how much equity you could release when you remortgage your BTL property. The maximum LTVs for BTL mortgages are usually lower than for residential mortgages to cover the additional risk to the lender.
|
BTL Property Value |
Outstanding mortgage |
Current LTV |
Lender’s maximum LTV |
Amount of equity available to release |
|
£200,000 |
£50,000 |
25% |
60% |
£70,000 |
|
£250,000 |
£100,000 |
40% |
70% |
£75,000 |
|
£300,000 |
£160,000 |
53% |
75% |
£65,000 |
|
£400,000 |
£200,000 |
50% |
80% |
£120,000 |
Mortgage repayments Vs. rental income required
The following table shows how much forecasted rental income a mortgage lender would expect to see based on a specific mortgage repayment.
|
Monthly mortgage repayment |
Minimum monthly rental income required (125%) |
Maximum monthly rental income required (145%) |
|
£500 |
£625 |
£725 |
|
£600 |
£750 |
£870 |
|
£700 |
£875 |
£1,015 |
|
£800 |
£1,000 |
£1,160 |
|
£900 |
£1,125 |
£1,305 |
|
£1,000 |
£1,250 |
£1,450 |
The information in the above tables is purely for illustration purposes only. For an accurate quote based on your personal circumstances, get in touch with one of our advisors.
How to release equity by remortgaging your buy-to-let property
Here are the steps to follow when remortgaging your buy-to-let property to release equity:
Work out exactly how much equity you need to release. In addition, gather documentary evidence regarding the rental income generated historically for the property and any future forecasts.
Compare interest rates and secure an AIP. Through Teito, you can compare buy-to-let remortgage rates for free and secure an agreement in principle within minutes
Speak to one of our advisors. Before you proceed, one of our specialist BTL mortgage brokers will be able to review your application and eligibility to make sure you’re getting the best possible deal. They can then guide you through the remortgage process from start to finish - get started here
Alternative options
If remortgaging to release equity isn’t viable, there’s several other alternative routes you can consider to raise additional funds, such as:
- Equity release on your main residence. If you’re over 55, you can consider using your home for equity release rather than your BTL property.
- Second mortgage. If you need to release equity quickly for a specific purpose and your existing primary mortgage deal has yet to reach the end of its term, you can take out a second mortgage on the BTL property to avoid paying early repayment charges.
- Personal unsecured loan. If the amount of equity you need is relatively small, then a personal loan may be more appropriate, where you can use a shorter repayment term. The overall interest repaid will be lower, and you won’t need to use your property for security.
- Secured loan. Can usually be attained relatively quickly, using your property as security, but you would typically need to have a specific reason for the secured loan (to buy a car or kitchen renovation, for example).
- Sell the property. This option is the most straightforward—you can simply sell the BTL property and collect the equity once the outstanding mortgage has been repaid. This will, obviously, mean you’ll no longer receive the rental income.
- Use other savings and investments. If you don’t want to increase your overall debt burden and have other savings available, you can use these without incurring any fresh interest charges associated with your mortgage.
Why choose Teito for your buy-to-let equity release needs?
You can compare buy-to-let remortgage rates for free through Teito. Once you’ve chosen a rate, one of our specialist brokers will be able to help you work out how much equity you need to release and run through all the alternative types of borrowing so you can choose which best suits your requirements.
Here are some of the reasons why our customers choose us:
- You can secure an agreement in principle within a matter of minutes
- Speak to a broker who specialises in buy-to-let remortgaging
- Exclusive rates and deals available across a wide range of borrowing
- We are 5-star rated on leading review websites
Ready to compare deals for free and take advantage of a free, no-obligation chat with a broker who specialises in buy-to-let equity release? Get started here.
FAQs
Yes, you can. If sufficient equity exists within either your primary residence or a buy-to-let property you own, then it's perfectly possible to use it for this purpose. However, other alternatives may come with cheaper overall costs, so it's worth speaking with one of our advisers before you proceed.
Read more about remortgaging to buy another property in our standalone guide.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.