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Fazil Arkhipov
Fazil Arkhipov

Releasing Equity To Buy Second Home ##HOT##

From an interest-rate perspective, a home equity loan may be safer because its interest rate is fixed, while the rate on a HELOC is variable. Borrowers with HELOCs have some protection in the form of caps on how quickly their interest rates can rise, although that can vary from lender to lender.

releasing equity to buy second home

If you still have a mortgage this can be done by remortgaging and requesting a sum larger than the amount required to pay off your current loan, while older homeowners (over 55) who have repaid their mortgage can use an equity release plan to dip into this pot.

Mortgages on second properties are regarded as higher risk by lenders, and for this reason you are likely to need a deposit in the region of 20%. Older homeowners may also find it harder to remortgage if the term is likely to run into retirement.

Then there are additional expenses involved in the purchase. Stamp duty in particular can be a deal-breaker in the UK, with buyers of second homes paying an extra 3% than buyers of primary residences. You may well have to pay tax on rental income too, with changes to fiscal policymaking it more difficult for landlords to make money.

Looking further down the line it is also important to consider the expense of equity release and the impact it could have on the value of your estate when you die. Even with a no negative equity guarantee, you could potentially be left with little or no money left in your home to pass onto your family.

Are you comfortably settled in your house and have been paying the mortgage now for quite some time - enough to start seeing the light at the end of the tunnel anyway? If this sounds familiar, you might now be considering what your next move could be. Does the prospect of owning a second house appeal to you? Daydreams of holiday homes, or perhaps a nice buy-to-let investment? Well, now could be the perfect time to explore your options and see if this dream could actually become a reality.

Using home equity to buy another house can be an effective way to use money that would otherwise sit tied up in your property. A mortgage adviser will look at your personal and financial situation before making recommendations on how you can achieve your ultimate goal.

Can you release equity to buy a second property, and if so, how can you do it? We discuss the different methods of releasing equity to buy another property, including equity release for seniors and the possibility to use a second charge or remortgage to buy another property as a younger homeowner.

Due to their age, income, credit history and affordability, many older purchasers struggle to secure a suitable mortgage or, worse yet, are completely shut out of the mortgage market. It is especially wise to release equity in order to purchase a property when the value of the second property is less than the equity that is being released.

It is possible to release equity to buy a second property, such as a holiday home, investment property or rental investment. Home equity is the value of your home that you own outright, calculated by subtracting any debt attached to your property away from the current property value. The equity released is tax-free, paid as a lump sum, and yours to spend as you wish.

The most exclusive method of releasing equity to buy a second property is reserved for senior homeowners who already own their home with no existing mortgage. These are called equity release schemes.

An equity release scheme allows the homeowner to access some of their home equity and never have to make any monthly repayments. The debt is paid back in another unique way. If the homeowner moved into long-term care, they must sell their home to repay the debt. If they never move into residential care, they only repay the debt from the sale of the property after death from their estate. For as long as they are living in the property they do not need to make any repayments.

The homeowner can be forced to sell their original home and pay back the debt if it is found that they are no longer living at the property. So any purchase of a second home must be as a rental investment or as a holiday home only rather than a new home to live in.

Not only that, but if you are considering equity release to buy a second home, you also need to research the costs involved, for example rental income may mean paying more tax and therefore not be worth the equity release.

Remortgaging is when you swap your existing mortgage for another one with a better interest rate. But when you remortgage to buy another home, you simultaneously ask to borrow more using your home equity as collateral.

For example, if you have a 200,000 home with 100,000 mortgage and 100,000 home equity, you ask the new mortgage provider to lend you 100,000 to pay off your old mortgage, and some additional money that can be used to help purchase a second property. So, you may ask for a 150,000 mortgage and use the extra 50,000 to help buy a rental flat or holiday home.

Another option is to use a second charge mortgage, also known as a home equity loan or home equity line of credit (HELOC). These are additional loans taken out on a property and secured with home equity. So you keep your existing mortgage and just apply a second debt to the property. By not swapping your outstanding mortgage to another provider, you may avoid some costly early repayment fees to boot.

For lots more information on releasing equity with any of the methods mentioned above, head back to our blog soon. We have covered all of the above in plenty more detail and answered the most asked relevant questions on each. Releasing equity can be a big decision, so make sure to do further research!

Average house prices increased by around 33% in the decade between 2010 and 2020 - and have continued to rise strongly this decade - so if you have owned your home for a long period and seen its value soar, now could be a good time to release some equity by remortgaging to buy a second house. This could help fund a deposit for a buy-to-let mortgage or even buy a whole property in cash.

The average UK property price as of the end of December 2022 was 262,068 according to the Nationwide House Price index, so you would need a lot of equity in your current home to release this much money, unless you can find a cheap property to buy outright.

A typical minimum deposit on a buy-to-let mortgage is 25%, so based on the average property price, you would need to release over 60,000 from your home through a remortgage. This is an effective way of releasing equity to buy another house, but check that you can afford the new remortgage rate.

Remortgaging to a buy-to-let mortgage reduces your purchase cost as all you are technically funding is the deposit, while the rent your charge should cover the repayments. But the deposit is just one factor when you remortgage to fund a buy-to-let. You will also need to pay stamp duty to purchase a second home in the UK. Since April 2016, all second property buyers have to pay an extra 3% on the existing stamp duty thresholds. That means, the average UK property of 262,068 would now have a stamp duty charge of 8,465 for a landlord.

There are a number of things you should consider when deciding if equity release is a good option. This is especially true if the purpose is releasing equity to buy another property. You should seek advice from a whole-of-market mortgage broker, such as Boon Brokers, to establish whether Equity Release is suitable for your situation.

If your second mortgage would be for a second home, then you may only need a 15-20% deposit. Again, the rates may not be ideal. If so, you can always choose to save a higher deposit before applying for a second mortgage.

Affordability is a key factor when applying for a second mortgage, especially if your second mortgage is for another home. Lenders will usually calculate your affordability by assessing your income and expenditure.

Buying a second property can be an ideal way to utilise the equity you have in your existing home. You can do this with a remortgage and use the capital towards a mortgage deposit for another property. From a financial viewpoint, this is perhaps one of the best reasons to remortgage.

Can I remortgage to buy a second property?Which type of property can I buy with a remortgage?Why do I need equity to remortgage?How much can I borrow?Will I be able to afford a second property?Can I buy another home if I have bad credit?How to remortgage a buy to let property to expand a portfolioFAQs

As a result, equity tends to be lower than in residential homes. This is because the majority of homeowners are repaying their mortgage balance, as well as interest on the loan. Lenders typically offer 85% mortgages if you wish to remortgage an investment property. This is calculated by assessing the rental income of the property.

Remortgaging your house to buy another property is a common way of raising money for people who are looking to invest in buy to let or to buy a second home. In this article, we will discuss some of the considerations if you are thinking about remortgaging to buy a second home.

If you are remortgaging to buy a new home you might want to use additional sources of income to show that you can afford the new loan. Some lenders are able to consider 100% of additional sources of revenue, such as regular bonus, overtime, second job or investment earnings.

Yes. If you are able to raise enough money from remortgaging your home to pay cash for a second property, then this is certainly possible. In fact, you might find that maximising borrowing on your current mortgage is cheaper than a buy to let or second home mortgage.

If you cannot raise enough to buy the second property, you may need to get another mortgage. The type of mortgage you take on the second property depends on how you intend to use it. If you are planning to rent the property to tenants, then you should look into buy to let mortgages, but there are also specialist products available if you intend to use the property as a second home or holiday let. 041b061a72


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