Equity release schemes are financial options that allow you to draw a certain amount of money from your property for the rest of your life. The plan is to sell part or the entire home while you are allowed to still stay in it rent-free for the rest of your life. This equity is available to home owners in lump sum, periodic payments, or both depending on the terms you agree upon. Home equity loans and credit lines are quickly gaining popularity among pensioners as they add money to your pocket, enabling you to live comfortably after retirement.
Buy to Let /Second Home/Holiday Home Equity Release
Equity release is typically given against the main residential property. However, recent developments in home equity lending have seen lenders come up with a scheme that allows release of equity on qualifying rental or second homes. Based on the standard product range, equity release providers offer either a flexible lifetime payout plan or a lump sum on a second or buy-to-let home.
What Makes a Second Home/Buy-To-Let Qualify For Equity Release?
There are several factors that are considered before a second home qualifies for equity release. Some of the basic requirements include the following:
• The home owner(s) must be 60 years or older
• The property value should not exceed £70,000
• The property must be in Wales, Scotland or England
• The amount released is based on the age of the home owner
• The release is dependent on each lender’s loan-to-value criteria
Typically, equity release service providers give about 20% of the home value to any home owner who is 60 years old. The value released rises steadily up to about 50% for anyone above the age of 90. However, these terms are constantly in review, with the most recent change being a drop in 10% loan-to-value. This means that a 60 year old home owner can only get 10% equity release on their second home or buy to let property.
How Is a Second Home/ Buy to Let Property Defined
In order to know the exact property that you can release equity from, it is important to know how service providers define a second home or a buy-to let property.
According to a leading equity release service provider, a second home is a property that is available for the sole occupancy of the home owner of a let out of a maximum of 4 consecutive weeks. The property must be used by the home owner at least 4 weeks in a year.
Buy To Let Property
This is property that gives the home owner rental income. In such a case, there must be short hold tenancy agreements as well as proven rental income. The rental income should be enough to cover the interest charged by the equity release service provider since you are using your home as collateral. Many lenders are still too shy to release on these types of properties. However, it is only a matter of time before a lender decides to tap into this growing market.
Some Words of Caution
Typically, equity release is a scheme that allows you to sell part or all of your property while you continue to live in it rent free. As such it is important to be cautious about whom you deal with and how you deal with them to avoid losing your house and desired income. Keep in mind that every growing financial solution has unscrupulous dealers lurking around waiting to pounce on ignorant home owners. Therefore, you should know about Home Equity Lines of Credit.
There are a few things you can do to avoid falling into the hands of fraudsters or lenders who use unlawful, unfair and deceptive practices to get you hooked. Look out for the following signs:
• Does a lender constantly encourage you to borrow more or continually refinance your loan? With every refinancing, you will pay more fees and charges which increases the size of your debt.
• Does the lender pile up unnecessary insurance packages on your loan? With every insurance package is a loophole to get more from you.
• Does the lender attract you with reasonable terms only to change them once you are ready to sign the contract? There may be tons of hidden charges in the new contract.
• Does the lender give you the amount you an amount based on the home value as opposed to your ability to make the required payments? If you cannot make a repayment, you will soon lose your property.
• Does the lender give unconventional terms such as unreasonably lower repayments? This increases your debt in the long run. You can seek mortgage debt forgiveness should this happen.
When looking for an equity release service provider, be sure to deal with only those with a reputation for professionalism. Do your research to avoid digging yourself into a hole you cannot get out of.