How To Release Equity From Your Rental Property?

Releasing equity lets you access cash from your property without selling it. This can be useful for investments, renovations, or surprise bills.

It has a similar concept with equity release for people over 55, with some key differences.

This guide covers all about releasing equity from buy-to-let properties. We explained what it is and how you can use it to reach your financial goals.

What is Equity Release in the Buy-to-Let Market?

Equity release lets you get money from your buy-to-let property without selling it. It’s useful if you need cash to buy more properties, make renovations, pay off debts, or have extra money for yourself.

It works by using the property’s value that’s grown over time. So, if your property’s value has increased, you can access some of that increase as cash. 

This is different from standard equity release plans for homeowners over 55. Those plans typically involve your main residence and are repaid when you sell the home or pass away.

With buy-to-let equity release, you might remortgage your property, taking out a new loan based on the increased value. You’ll then repay this loan over time.

Can You Release Equity from a Buy-to-Let Property?

Yes, you can release equity from a buy-to-let property, but it’s a bit different from how you might with your main home. 

Traditional equity release schemes, often seen with residential properties, aren’t typically open for buy-to-let properties. 

This is mainly due to the different financial and risk factors involved with investment properties.

However, there’s a common alternative: remortgaging. 

Remortgaging your buy-to-let property to release equity is a practical route many landlords take. 

By remortgaging, you might secure a new mortgage deal on your property that’s higher than your current mortgage, allowing you to access the built-up equity as cash. 

This method is popular among landlords looking to raise funds, perhaps to invest in more properties, refurbish existing ones, or cover other costs.

If you own several properties, you might release equity from all of them at once. This approach demands careful thought and a clear grasp of the terms.

Remortgaging for Buy-to-Let Equity Release

Remortgaging your buy-to-let property can free up equity, giving you cash to use. 

This involves switching to a new mortgage with a higher loan-to-value (LTV) ratio than your current one. 

When you remortgage for a higher amount, the difference is the equity released.

Lenders look at various factors when you apply to remortgage. They’ll consider your rental income from the property, your personal income, your credit history, and your debt-to-income ratio. 

All these help lenders decide how much they can safely lend you. A strong rental income and solid personal finances can improve your chances of a good remortgage deal.

What Options Are Available for Buy-to-Let Equity Release?

Unlike personal homes, buy-to-let equity release choices are fewer. However, there are still ways to unlock cash. Here’s a quick look:

• Lifetime Mortgages. Similar to regular equity release, borrow against your property value (usually for over 55s). Specialised schemes exist for buy-to-let investments.
• Enhanced Lifetime Mortgages. For landlords facing health issues, enhanced lifetime mortgages could let you access more capital, reflecting a shorter expected loan term.
• Inheritance Protection Plans. This type lets you safeguard a portion of your property’s value for future inheritance, balancing equity release with legacy planning.

Remember, each plan has its own features and considerations. Talking to a buy-to-let equity release specialist is vital to pick the best option for your goals and circumstances.

Who Qualifies For A Buy-to-Let Equity Release?

To tap into equity from your rental property, you must meet certain criteria. Here’s a rundown:

• There might be minimum age requirements depending on the lender. With most equity release products require you to be at least 55 or over.
• Your property needs enough value to release equity. The amount varies but can be up to 75% of the property value.
• Your rental income must cover existing and additional mortgage repayments.
• Your tenants should have assured tenancy agreements, usually lasting less than 12 months. This ensures flexibility for both you and the lender.

Remember, these are general criteria. Meeting these requirements may set the stage for a successful equity release from your buy-to-let property, but consulting a broker is still highly advisable.

How Much Equity Can I Release?

The amount of equity you can release from your property depends on several factors:

• Property Value. The market value of your property plays a crucial role. Higher value properties can potentially release more equity.
• Existing Equity. The amount of equity you’ve already built up in your property is key. More equity means more potential cash.
• Age and Health. Older landlords, or those with certain health conditions, might access more equity, reflecting the terms of the equity release scheme.

Realistically, you might release between 10% and 60% of your property’s value, though this varies widely based on the above factors and the lender’s policies. 

To get a ballpark figure, try the equity release calculator. Consulting with a specialist may help pinpoint a more accurate figure for your situation.

Tenant Considerations in the Equity Release Process

When you choose to release equity from a rental property, think about your tenants. 

The process should not upset their living conditions, especially with proper tenancy agreements in place.

Short-term assured shorthold tenancy agreements, usually under 12 months, are key. They provide flexibility for you and your tenants, making sure the equity release doesn’t affect their rights or security.

Talking openly with your tenants about any possible changes is important. 

Clear communication keeps the relationship strong and ensures a smooth process for everyone.

Is Releasing Equity from a Buy-to-Let Property Right for You?

Deciding to release equity from a buy-to-let property depends on your financial goals and circumstances. 

It can provide liquidity and growth opportunities but comes with certain drawbacks.

Pros

• Unlock cash from your property for various needs, like more investments or upgrades.
• Expand your property portfolio without selling any assets.
• Keep your own home out of the equation as collateral.

Cons

• Borrowing might be costly due to potentially high interest rates.

• Your heirs might receive less inheritance from your estate.
• Future loan options against your buy-to-let property could be limited.

Alternatives to Buy-to-Let Equity Release

Apart from remortgaging and lifetime mortgages, there are other alternatives to release equity from buy-to-let properties.

Here’s what you can consider:

• Secured Loans. Opt for a second mortgage secured against your property’s equity. This option is available if remortgaging or equity release isn’t suitable or you’re not eligible. Lenders may offer generous amounts, subject to your ability to meet repayments.
• Further Advance. Apply for additional borrowing on your existing buy-to-let mortgage. This involves new affordability and credit checks but being an existing customer might work in your favour.
• Equity Release on Your Home. Consider releasing equity from your main residence as an alternative. This could offer more substantial sums and a broader range of products without using your buy-to-let property as collateral.

The Bottom Line

Releasing equity from a buy-to-let property can be a smart move. It offers you cash for investments, improvements, or other needs. 

But it’s not without its considerations. So, before going ahead, ask yourself these key questions:

• How will this affect my tenants and their agreements?
• Can I manage the potential higher interest rates over time?
• How will this decision impact my long-term financial and estate plans?

It’s wise to get professional advice tailored to your situation. An expert can guide you through the options, ensuring you make an informed choice.

Thinking of releasing equity from your buy-to-let property? Contact us for a free consultation. We’ll connect you with the right specialist for your needs.