Once you’ve found a buy-to-let/second home plan you like, you have several options. To find out more about it, click ‘More info’. To get a personalised quotation from your Equity Release Supermarket adviser, click ‘Get quote’. Or to find buy-to-let/second home deals tailored just for you, click ’Get smartER’ and use our intelligent search engine.
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What is a buy-to-let lifetime mortgage?
While most lifetime mortgage plans are only available for the home you live in - your main residence, there are a small range of specialist buy-to-let (BTL) lifetime mortgage plans which enable you release equity from your investment property portfolio.
Buy-to-let mortgages can be applied for between age 55 and 90 - usually beyond the maximum age of most traditional BTL plans. An Assured Shorthold Tenancy (AST) must be in place. The landlord can choose whether or not to make payments back to the lender.
Landlords continuing to rent into retirement, may find lenders cap maximum age, thus leaving little option than forcing landlords to sell. If there has been a rise in property values since purchase, selling may then incur a substantial capital gains tax bill.
These over 55 buy-to-let mortgages have been developed to provide landlords with a viable alternative to retain or expand their property ownership without loss of rental income. As the property isn’t sold, capital gains tax can be mitigated.
Second home mortgages allow you to borrow against another property you may own in the UK. As second/holiday home plans tend to be specialist lifetime mortgages, the choice of lender is limited. These lenders may insist that the property is only used by the owner and their family, and for a minimum period of time. This is to ensure that the property is truly a second or holiday home, and not a buy-to-let proposition.
Some lenders do allow the property to be let – but under strict guidelines. These include the let being for a maximum of 4 weeks, that no formal agreements or Assured Shorthold Tenancies (AST’s) in are place and that the second property isn’t advertised for letting purposes, such as through any estate agency, or online.
Of the lifetime mortgage lenders that offer second/holiday home schemes, LV= have adapted both their lump sum plus and flexible lifetime mortgage to be used on second homes - but with a 10% reduction on LTV. Canada Life have specific products catering for second home ownership. We’re here to help you find the right plan.
How much can I borrow with a buy-to-let lifetime mortgage?
As with all lifetime mortgages, the lender simply takes into consideration the age of the youngest homeowner and the value of the property at the time when they are calculating how much they will lend with a buy-to-let lifetime mortgage.
Unlike residential mortgages (or other later life lending options such as retirement interest-only mortgages or
retirement mortgages) your present and future income isn’t important, and neither is your monthly expenditure.
Your age is important though because the older you are, the more you can borrow. With buy-to-let lifetime mortgages, due to the extra perceived risk to the lender, the loan-to-values tend to be lower than standard lifetime mortgages.
Starting at age 55, you can borrow upto 19% of the property value. By age 75, this rises upto 39% of the value of your buy-to-let property. Using our BTL calculator above, you’ll get an idea of the maximum you can borrow.
Compare the advantages and disadvantages of buy-to-let lifetime mortgage plans
Ability to borrow against the value of a BTL property
You are not restricted as to how many lifetime BTL mortgages you own. You can have multiple plans covering multiple properties, subject to eligibility. This could even be in addition to, or as an alternative to securing equity release on your main residence.
You receive all your money in one go
Enabling you to maintain or expand your buy-to-let portfolio. Alternatively, your money is free to spend on whatever you wish.
There are typically no monthly repayments
No affect on budget. The amount borrowed, and accrued interest is only repaid when you die or move into long-term care.
Overpayments are available
Voluntary payments of upto 10% of the original amount borrowed can be repaid every year without penalty. These ad-hoc payments can repay the interest, or actually reduce the outstanding balance of the mortgage.
Can be used to mitigate Capital Gains and/or Inheritance Tax
As the property is not being sold, there is no liability to capital gains tax. Additionally, by allowing interest to roll-up and increase the balance yearly, this may help to reduce the value of your estate and mitigate/reduce any IHT payable.
There is the option to borrow more
Depending on the lenders criteria, you may be able to take a minimum amount of £4,000 additional borrowing in the future.
Offers a no negative equity guarantee
Even though these plans do not meet Equity Release Council guidelines, the plans still include this no negative equity guarantee - protection of knowing that when your plan is repaid, your loved ones will never be out of pocket.
Disadvantages
Choice of lender is limited
Buy-to-let lifetime mortgages are specialist loans, hence there are only a few lenders that will consider them.
Interest rates tend to be higher
Than with ‘standard’ lifetime mortgages. Again, this reflects the specialist nature of the plans.
You can borrow less
Than you can with a ‘standard’ lifetime mortgage as the loan-to-values are typically around 8% lower than normal.
Less flexibility than other lifetime mortgages
Because you don’t have the option to borrow smaller amounts over time as you do with a drawdown lifetime mortgage.
Greater underwriting criteria
Landlords must have an AST in place and there are certain restrictions on types of tenants permitted.
Your means-tested benefits could be affected
As you are receiving a cash sum, any current/future means-tested benefits claimed may be affected.
There are early repayment charges (ERCs)
If want to repay your buy-to-let lifetime mortgage early, you can, but may be subject to repayment charges. These charges may differ depending on your equity release provider, but are currently fixed ERCs that taper over an 8-year period.
Restrictions on lending criteria
These BTL mortgages cannot be used as a purchase vehicle or be ported to another property. Although the lender is part of the Equity Release Council, the plan does not meet all their standards - as the mortgage isn't secured against a main residence.
These are buy-to-let and second home plans. Please note buy-to-let lifetime mortgages are unregulated, they share similar characteristics with a Lifetime Mortgage and therefore not defined as a Lifetime Mortgage by the FCA. To understand the features and risks, please ask for a personalised mortgage illustration. All BTL and Second Home quotes can be tailored to your own circumstances and you are under no obligation to proceed.
