[col type=”one-third”]
Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 678 5955
[/col]
[col type=”two-third last”]
Question
Releasing equity on a buy-to-let
Can you please advise if it is possible to have Equity Release on a buy-to-let property? I have been studying your website, but cannot find the answer to this query.
Answer
The quick answer to your question is ‘yes’, you can take out equity release on a buy-to-let (BTL) property, subject to criteria.
We have a lot of information on our website about the availability of lifetime mortgages on a buy-to-let basis. So, I’m sorry to hear that you couldn’t find it.
In summary, you would need to be over age 55 with a minimum property valuation of £70,000. There must be an Assured Shorthold Tenancy (AST) agreement in place for no longer than 12 months. The minimum loan is £10,000 and these plans currently come with fixed early repayment charges over an eight-year period.
Our clients have found these plans useful to help build their rental portfolio.
For instance, they can help landlords to purchase a BTL property, even remortgage an existing BTL property to help finance another. Landlords may wish to release equity rather than having to sell, thus potentially avoiding capital gains tax issues; and finally, to repay existing interest-only BTL mortgages where repayment is due by the lender.
We offer a page that explains further how buy-to-let equity release works. There is also a calculator, so that you can get an idea of how much you could borrow. Plus, you can also compare the plans available from the lenders that offer buy-to-let lifetime mortgages.
If you’d then like to speak to your local, expert Equity Release Supermarket adviser, then can get in touch with them here.
[hr style=”single”]
Question
Can I move house after taking out equity release?
I wondered whether you could advise me on what might happen if, having taken out equity release, I then decide to move house. I am considering equity release as a way of freeing up some money to help my son. However, I am in my early 60s and therefore would like the flexibility of knowing I could move to a smaller property or a retirement home further down the line. I expect this would not be for at least five or even ten years, but I would like to know my options.
Answer
You have a couple of options if you take out a lifetime mortgage (the most popular type of equity release scheme) and then want to move home in the future.
Firstly, you can simply ‘port’ or transfer your current lifetime mortgage to the new property. At Equity Release Supermarket, we only advise on plans that allow you to do this.
The caveat here is that the new property you are buying must meet the provider’s lending criteria at the time.
Your second option is to sell your current home, repay your lifetime mortgage and then use the proceeds to buy your new house.
The caveat here is that as interest rates on lifetime mortgages are usually fixed for life, there could be early repayment charges (ERCs) to pay if you were to consider this as an alternative.
The good news is that many lifetime mortgage lenders now offer plans with flexible ERCs to allow homeowners to sell their homes and repay their lifetime mortgages – without penalty.
For example, if the new home you want to buy you doesn’t meet the provider’s lending criteria (so you cannot ‘port’ your plan) or you simply want to sell up, some providers won’t apply an ERC when your current home is sold and your lifetime mortgage is repaid. This is provided your plan has been in place for at least three or five years. This feature is referred to as ‘Downsizing Protection’.
It’s also worth mentioning that some providers won’t charge an ERC if you or your partner dies or you move into long-term care and the ‘surviving’ partner then chooses to sell and move to another property. In these circumstances, lenders typically give you three years after this event to sell the property without charge. Again, this ‘Compassionate ERC’ clause (as we call it), is only available on certain plans, so always check with your adviser beforehand.
If you are considering taking out a lifetime mortgage with a view to repaying it, then we recommend that you discuss this with your expert adviser at Equity Release Supermarket, so that we can tailor a plan to meet your needs both now and in the future.
[hr style=”single”]
Question
Tell me more about Retirement Interest Only (RIO) mortgages
I wondered if you could explain a bit more about Retirement Interest Only (RIO) mortgages, please? I would specifically like to know if this is a suitable option for someone who owns their property outright but would like to release some equity. I am 72 and my husband is 82 and has a good final salary pension so we could easily make the payments each month. We would like to release £80k from our house, which has been valued at £385,000.
Answer
RIOs are an alternative way to raise funds from your property in later life and they work in a similar way as a residential interest-only mortgage, but with no end date or fixed term.
Therefore, only the interest accruing on the amount borrowed is repaid monthly and the capital (the amount you borrowed) is only repaid when you die or move into long-term care.
You are looking to borrow 21% of the value of your home, which is well below the maximum of 50% to 60% that most lenders offer.
Lenders take different approaches to assessing ‘affordability’, i.e. do you have the income to afford the monthly repayments? The major stumbling block for RIO applications we have experienced at Equity Release Supermarket is where we have joint applicants.
As best practice, lenders will assess affordability on both incomes, but in their own right. Therefore, you state your husband has a good final salary which would support his affordability; however any RIO lender would also assess affordability on your sole income too.
The reason being that if your husband died, they would need assurance you would still be able to support the mortgage yourself. The good news in your case is that RIO lenders would accept a spouse’s pension from his final salary scheme, as well as your own personal income(s) too.
Regarding your ages, some lenders insist that the maximum age at which a RIO is taken out is 80, whereas others simply have no maximum age limit at application; thus options do exist based on your circumstances.
RIOs are yet to grow in popularity primarily because of the criteria that lenders put in place when assessing affordability, but also because lifetime mortgages offer ‘interest-only’ solutions where you repay the interest accruing on the amount borrowed monthly anyway.
Moreover, the interest rates available for both RIOs and lifetime mortgages are very similar and lifetime mortgages offer a fixed rate for life, where affordability is not assessed. Lifetime mortgages offer more flexible features and you won’t have to remortgage every few years – with the associated costs.
We offer a factsheet on RIO mortgages, which you can download here. Our website again provides a current list of RIO mortgages in our comparison tables here.
While a RIO mortgage could be a way for you release equity from your home, it should be considered alongside a lifetime or retirement mortgage and the best way to assess your options is to speak with your qualified, expert adviser at Equity Release Supermarket.
[hr style=”single”]
Question
Can we use equity release to clear our debt?
My wife and I are thinking of releasing equity to pay off some of our debts. We have just over £25,000 on a personal loan and we also have some credit card debt which amounts to nearly £7,000.
We are both in our 60s and own our house outright. Would we be eligible for equity release when sitting on so much debt? And, if so, what might we need to provide in terms of reassurance to a lender in order to gain approval? I currently have a small pension as does my wife and we have no savings.
Answer
Repaying debts such as these is one of the most popular reasons our clients take equity release.
One of the great features of these plans is that your financial circumstances are not as important as they are with a residential mortgage. Most lenders would still need to know if you have any adverse credit history, but they are more lenient than their residential counterparts.
The debt you have from your loan and credit cards and the size of your pension are not ‘lending criteria’ and so you won’t need to provide details to your lender about your income, expenditure and debt. The lender will simply want to be sure that the value of the home is sufficient for the amount you want to borrow, and that you are both over the age of 55.
As you are both in your 60s, you will be able to borrow around 30% of the value of your home. While you haven’t told me how much your house is worth, I’ll assume it’s the typical UK house price of around £230,000. Using this as a valuation, you may be able to borrow a maximum of £69,000 – which is more than enough to repay your debts and have some extra money, if required, to spend on what you want.
[hr style=”single”]
[/col]
