Equity release has become increasingly popular over the last few years. Many people aged 55 and over have unlocked cash tied up in their property to make home improvements, pay off an interest-only mortgage, or to help their children get on the property ladder.

However, many people are still unaware that they can also use equity release on a buy-to-let property. People who have invested in property often find themselves asset rich but cash poor when they come to retire, and it can sometimes be difficult to unlock the cash tied up in a buy-to-let.

What is buy-to-let equity release?

Equity release on a buy-to-let allows landlords and property investors to access some of the equity in their portfolio tax-free. They can choose to spend the money however they like, for example:

  • To supplement their retirement income
  • To replace a traditional interest-only mortgage
  • To renovate their buy-to-let property
  • To keep all rental payments

Or for many other purposes.

How does equity release on a buy-to-let work?

Equity release on a buy-to-let works in much the same way as releasing equity on your own home. You must be at least aged 55 and have a property worth at least £70,000. The amount of equity you can release is dependent on your age, the value of your property, and sometimes your health.

Some of the key factors of an equity release buy-to-let product include:

  • There are no monthly interest repayments to make unless you choose to.
  • The loan is typically repaid from the sale of your property when you die or go into long term care.
  • The interest will roll up over the duration of the loan and reduce the equity in your property
  • You can choose to keep all rental payments.

There are three main ways that you can access cash from your buy-to-let property:

  1. Take a one-off tax-free cash lump sum
  2. Take several smaller sums over a period of time
  3. Increase your monthly income by replacing an interest-only mortgage with an equity release buy-to-let scheme to stop making interest repayments and retain more or all of your rental income.

Take a look at this example of how Ted boosted his retirement income.

How to boost your retirement income using equity release on a buy-to-let property

Ted, in his early 70s, borrowed £185,000 on an interest-only basis in 1998 to purchase a flat as a buy-to-let investment. The property is now worth £425,000.

The problem:

Ted’s interest-only mortgage is coming to an end, but he doesn’t want to sell the property to repay the £185,000 he borrowed. He wants to retain ownership of the property to continue generating an income for his retirement. However, due to his age he is unable to remortgage with a mainstream lender.

The solution:

Ted took out a buy-to-let equity release mortgage to repay the outstanding £185,000 he borrowed and retain ownership of the flat.

  • Ted is still generating an income from his property
  • He no longer has to make monthly interest repayments and has increased his retirement income
  • He has peace of mind that he has paid off his interest-only mortgage and doesn’t need to repay the equity release loan until he dies or goes into care
  •  Ted doesn’t need to worry about refinancing because the equity release mortgage will last his lifetime

An equity release buy-to-let product was ideal for Ted’s circumstances, although they are not suitable for everyone. The majority of buy-to-let equity release mortgages are unregulated and so it is important to speak to a qualified equity release mortgage broker who can advise on the suitability depending on your individual circumstances.

If you would like to learn more, please call Barry Leigh, one of our Equity Release Specialists, on 07980210953 or email barry@prpltd.co.uk.

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