Can you use equity release to purchase a property?

The short answer is yes. The following blog post will explain the standard process for property purchases using an equity release plan. I’ll explain how you may be able to use a lifetime mortgage to purchase a property. A lifetime mortgage is a common way for homeowners over 55 to obtain a mortgage in later life, as these are based on property criteria and not income, which is not guaranteed in later life.

Why use a lifetime mortgage for a property purchase?

You may wish to move to your forever home, which is perfect for your needs in retirement, in the location you want to live. However, you have a small mortgage remaining on your existing property, and the property you wish to move to is out of your budget. 

In this case, a lifetime mortgage may be able to be used so you can move, as well as cover moving costs or building work on the new property. 

With a lifetime mortgage, you do not need to make monthly payments like a standard mortgage. However, if you roll up the interest, this can affect any benefits you receive and your estate. 

Should you pass away or enter long-term care, your property will be sold to cover the lifetime mortgage. Modern plans approved by the Equity Release Council are more flexible than ever and also come with a ‘no-negative equity guarantee’, meaning no money will be owed by your descendants to pay off the mortgage after the property is sold.   

Types of property purchase

Using Equity Release to Buying a new home

You’re dreaming of moving home but unsure if your budget can stretch to the property you have your eye on.  

It may be possible to remortgage, but you may not be eligible for a standard mortgage in later life without being able to prove guaranteed income over the mortgage term. You may also not be able to afford the quoted monthly payments.

An equity release plan may allow you to borrow against your future home without making monthly mortgage payments. 

The idea is to sell your current home, pay off any outstanding mortgage, and buy a new property simultaneously. 

The lifetime mortgage would apply to the new house you have moved to.

To get more information, we recommend you speak to an equity release adviser to find out how much you can afford to spend when property hunting. 

If you find the property you wish to buy, you will apply for a lifetime mortgage to combine with the equity in your existing property to pay for the new mortgage. 

Can you buy a second home using equity release?

Yes, releasing equity to buy a second home is possible by unlocking money tied up in your current one.

If you buy a second home using equity release, you’ll still need to live in your main home for at least six months of the year. There’s also the issue of stamp duty, depending on the value of your second home. And the usual costs of buying a property, like solicitor’s fees.

Using equity release to buy a buy-to-let

If you want to use equity release to invest in a buy-to-let, you’ll have all the same issues with buying a second home, such as stamp duty and solicitors’ fees. You may also have to pay tax on any rental income you make.

Specialist buy-to-let lifetime mortgages are available at some lenders. They could be a funding option for landlords who have not been able to extend their current mortgages on their properties. 

You’d have to speak to an authorised adviser to understand your eligibility. Eligible properties must be valued at £70k or more, and you’ll need to be aged 55 and over to obtain any lifetime mortgage. 

Purchasing a holiday home using Equity Release

If you want to buy a holiday home overseas, you might be able to release some equity from your primary residence to use the cash for the down payment. 

You can enjoy your time between your primary residence and your second home. 

Remember that you will still have to live in your primary residence for at least half of the year. You will also need to consider that you might want to buy the property outright so that you don’t have any additional monthly payments.

Depending on the value of your property, you may need to pay stamp duty when buying a holiday home in the United Kingdom. If you want to know more about stamp duty for second homes, visit the Homeowner’s Alliance.

If you’re considering buying something abroad, you’ll need to consider the price and the cost of currency exchange rates and local laws and regulations. Remember that you will need to pay solicitors’ fees for both the UK and overseas.

Timespans: How long would the process take? 

Much like standard mortgages can be a complex and drawn-out process, a lifetime mortgage involving a house purchase can be a long process. 

Based on our experience, the offer from the lender usually takes half as long as the legalise from the solicitors, where there could be more complexities and issues. 

Your broker will help liaise with all parties to ensure you remain happy with the progress. 

That being said, we have seen some lifetime mortgage purchases progress faster when there is no onward chain and the desired property meets the lender’s standard criteria definition.