Can I get Equity Release on a Rental Property?

Many landlords heading for retirement age expect their rental properties to become their biggest source of income when they give up work. But when it comes to releasing the cash that’s locked into their properties to fund their retirement, many will be asking, can I get equity release on a rental property?

The simplest answer to this question is, no, not as a rule. Most equity release mortgage lenders will not allow landlords to release equity on a property they rent out, unless they plan to move in to it as a main residence. Even then, there may be rules dictating how long they must live in the property before they will qualify for equity release.

What’s more, if you decide to stop living there, the lender may force the sale of the property so that the loan can be repaid in the same way that an equity release loan will become repayable on death or on moving into long term care.

So, how to release equity as a landlord?

With the answer to the question, can I get equity release on a rental property being the negative, it is worth considering the alternatives.

There are in fact numerous specialist buy to let equity release plans that allow landlords to raise funds on an investment or leasehold property that they do not themselves occupy.

There are few lenders who offer these types of plan, and there are quite a few restrictions in comparison to regular lifetime mortgages. For example, the property will have to be rented out under an Assured Shorthold Tenancy Agreement, and is it not permissible to let the property to family members.

Standard lifetime mortgage benefits still apply, however, such as fixed interest rates with no payments required, although repayments can be made up to 10% of the amount raised if desired.

The loan (and all outstanding charges and interest) will be repaid from the sale of the property when the landlord or last remaining borrower dies. And the beneficiaries of the property can choose to repay the loan without selling the property, allowing them to keep it until it’s sold so they can retain the leftover proceeds.

There is always the option to re-mortgage on an existing rental property. By changing provider and re-mortgaging, you will be able to release capital from your property and use it how you like, but you’ll usually have to wait until your own mortgage deal is coming to an end or risk paying penalties.

Can equity release be used to buy another property?

If you are aged 55 years or more, you may be able to use equity release to help buy another property, for example a second or holiday home. The money released from the main residence can be used to fund the moving costs, for example, or to cover the shortfall between selling one property and buying another.

If you are buying a new home to move to, the equity release would come from the new property, with the equity release mortgage and purchase finalised at the same time.

If you are purchasing a second or holiday home, then you would need to live in your main residence for at least six months of the year. So you could only spend a maximum of six months in the second or holiday home.

If you wish to purchase a buy to let property with the help of equity release, you will need to find a specialist lender, as mainstream lenders generally do not offer this type of product.

If you have an existing lifetime mortgage in place already, you could, in theory, transfer it to the new property and even borrow more money at the same time if you need it. All of this would be subject to the new property meeting the lender’s criteria.

Always take specialist financial advice when considering equity release or any other property-related lending and make sure you understand the features and risks by asking for a personalised illustration. Equity release is not for everyone, so be sure to seek personalised, professional guidance.

Thinking of renting out a property and looking for rent guarantee assurance?

Whilst it won’t give you an immediate injection of cash, a guaranteed rent scheme will give you peace of mind as a landlord. You won’t have to deal with costly void periods because your income each month is guaranteed, even when the property is untenanted or the tenants are not paying their rent.

A guaranteed rent scheme from City Borough Housing will also cover all your tenant sourcing costs, fees for interim inspections, and all your property management and maintenance and repair costs, allowing you to become a hands-off landlord, which is ideal during your retirement years when you want to be taking things more easily.

Interested to learn more? Get in touch with our expert team to request your free rental valuation.