Property Investment Guidance

How to Fund Your Next BTL Property Through Equity-Release

It is common knowledge that Property is a key asset class in a well-diversified investment portfolio and investing sooner rather than later is always the smart move.  

While one of the most common reasons for not investing in Property is a lack of funds, releasing equity from other Buy-To-Let properties, or indeed, your own residential home could help you raise a significant amount of money to put towards your next investment property.  

What is Equity?   

Equity is the difference between the current value of your property, and the mortgage or any other secured finance you may owe on it.  

It’s no secret that house prices have risen dramatically in the last year. According to the Office for National Statistics, the average UK house price increased by £220,000 between 2000 and 2022! Depending on how long you’ve owned your property, there could be a substantial amount of ‘dead money’ tied up in the property and equity release is a popular method used by investors to unlock this money 

 

Why You Should Consider Releasing Equity From Your Property   

By re-mortgaging your home and releasing the equity you have accumulated over the years, you can get instant access to that money, which can be used to buy a BTL property. 

What’s more, is that you don’t have to stop there! You can repeat this method over and over again and go on purchasing property after property. That’s why equity release is popular among those wanting to establish a buy-to-let portfolio, sooner, rather than later, and use equity growth for further investment. 

Pros of Equity Release 

Speed 

Re-mortgaging your home is a relatively quick and easy method of raising capital because your mortgage lender already has your information, and the money is secured against the value of the property. By choosing to re-mortgage your home, you will also get to choose exactly how much cash you would like to withdraw, whether that is enough to cover the deposit for your next investment or to fund home improvements.  
 
Return
While increasing your debt can seem daunting, if you use that money to invest in assets that appreciate over time, you will likely be quid’s in! Consider the mortgage interest rate on your refinance is 2.5%, but you can make north of 10% (rental plus capital growth) by investing your money in Property, the balance would be free money. And this effect is enhanced when you use a mortgage to leverage your new BTL property.  
 

Considerations Before Releasing Equity  

  • There is no guarantee a lender will approve your application to release equity
  • Just like any mortgage, you will be required to prove you have the income to repay the loan
  • It may be a good idea to seek the advice of an independent mortgage broker, who can ensure you get the best rates possible

Let’s Crunch the Numbers

When you re-mortgage to release equity, your repayments are almost definitely going to become higher than they were, which is something you will need to consider.

Naturally, if you are investing in buy-to-let property, these costs will likely be more than covered by your rental profits, but it is always best to check the numbers beforehand. 

Example 1 – Equity Release from Residential Home

Name: Viren & Varsha

Age Group: 60+
Value of Property: £550,000
Equity Released: £200,000
Additional Income Created: £12,500 p.a.
 
Viren & Varsha owned their home outright and were looking for a way to create an additional income stream to supplement their pension. They had recently had their property valued by a local estate agent at £550,000 and decided to release £200,000 of equity from their home to invest in 3 properties in the North.
 
After costs, the properties make them a rental profit of nearly £15,000 per year, and since the mortgage interest cost on their own home is only £2,500 per year, they are making an additional £12,500 per year at no extra cost to them.
 
What’s more is that the properties will grow in value at an average rate of 10% p.a., adding £45,000 in equity to their portfolio every year. In total then, Viren & Varsha are making an annual gain of £60,000 against a small extra cost of £2,500 on their home mortgage. It’s clear to see that despite accruing more debt, the couple have increased their annual income whilst adding thousands of pounds in equity every year to their BTL portfolio.

Equity Release Example 1 I Lifestyle Property People

Their plan is to refinance all 3 BTLs in a few years’ time and use the money to further expand their property portfolio and get their money working for them.

Example 2 – Equity Release from BTL Property

Name: Hema Patel

Age Group: 35-50 
Value of Property: £160,000
Equity Released: £45,000
Additional Income Created: £12,500 p.a.
 
In 2016, Hema purchased a buy-to-let property in Leeds for £100,000, with a 75% Loan to Value interest-only BTL mortgage of £75,000. In 2021, while refinancing her property, she realised that the property had increased in value to £160,000.
 
After a conversation with our mortgage advisor, she decided to release some of that tied-up equity and use the money to re-invest in another property. Her new mortgage was £120,000, with an interest payment of £3,350p.a.
 
After paying back her original £75,000 mortgage, she was left with £45,000 in her bank account. She used that money to purchase another BTL property, this time in Sheffield, and after expenses, that property makes her an annual profit of £4,000.
 
On top of this, she now owns 2 Buy to Let properties which are increasing in value every year by an average of 10%! Not bad when you consider that all she really had to do was fill out some forms!

Equity Release Example 2 I Lifestyle Property People.jpg

What Next? 

As you can see, equity release is a convenient and efficient way of accessing ‘dead money’ and getting it working harder for you. 

If you’ve got money tied up in your house, and want to discuss how you could use it to invest in Property, click here to book an initial chat with one of our team. 

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