Equity Release to Buy Second Home in 2022

Can You Use Equity Release to Buy a Second Home?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Can You Use Equity Release to Buy Another Property? Discover the Pros, Cons, Costs & Process of Using Equity Release to Buy a Second Property.

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The property price has risen by 48% in the last 10 years, with some opting for equity release to buy a second home.

If you already own a home, you could be in a fantastic position to climb the property ladder for a second time.

Are you considering downsizing or unlocking equity? You could get the best of both worlds by using equity release to buy a second home.

We’ll help you discover:

  • Your options to buy a second home.
  • How to go about purchasing a second property in Aug 2022.
  • What you must know about capital gain tax when buying a second property.

Our goal is to help you retire with confidence, having all the comforts you need to get through the rest of your life.

Furthermore, we want you to leave a lasting legacy.

Hence, we’ve spent endless hours delving into the subject of using equity release to buy another house.

Take a look at what we have found!

TABLE OF CONTENTS

Can You Use Equity Release to Buy Another Property?

Yes, you can buy a second home with an equity release. You can use it to acquire a new house, a holiday property, or even part of your own home if it is utilized as a B&B or Airbnb1.

What is The Process of Using Equity Release to Buy a New Home?

In the process of purchasing a new home by using equity release.

You’ll need to contact a financial adviser who’ll find a lender for you, have a home valuation, house hunt, and have the process finalised.

Here’s more details:

  • Get in touch with your financial adviser – Your trusted adviser will help you determine if using equity release to purchase a property is a good move. They’ll also aid in the equity release process.
  • Discover how much equity you have available in your home This will determine if you have enough to pay off your mortgage and fund your second home purchase. You can use our equity release calculator for an accurate estimate.
  • Hunt for your dream home – Ensure that you find a secure property that works well within your price range.
  • The equity release, mortgage repayment, and purchase of the new property – All these processes will be finalised simultaneously when using equity release to buy a second property.

Can I Purchasing a Holiday Home Using Equity Release?

Yes, you can use equity release to purchase a holiday home.

You can spend time split between your primary residence and your holiday property if you want to use equity release to buy a holiday home in the United Kingdom or abroad.

As long as you live in your primary residence for at least 6 months a year.

You’ll need to remember these vital tips when considering using equity release to purchase a holiday home:

  • You must continue to reside in your primary house – As per equity release criteria, you’ll need to live in your primary residence for atleast 6 months a year.
  • Stamp duty – If you’re purchasing property in the Kingdom, you will be eligible to cover stamp duty. The amount will depend on your second home’s value.
  • Do your research for international properties – You’ll have currency exchange rates2, as well as local rules and laws to consider if you go abroad to purchase a property.
  • You’ll need to hire a solicitor – Whether you’re using equity release to buy a second property as a holiday home in the UK or abroad, you’ll need a solicitor during the process.

Before You Keep Reading….

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What are the Pros & Cons of Using Equity Release to Buy Another Property?

The biggest pro of using equity release to purchase another property is that the value of both properties could grow, making it an excellent investment.

The biggest con of using equity release to buy another house is that it can be a costly process.

Here’s a comprehensive list of the pros and cons of using equity release to purchase a second home in Aug 2022

Advantages

  • Property is generally considered to be an appreciating asset, so with the right advice, you could seriously end up benefiting financially from having an additional home.
  • While your primary residence will usually be sold at the end of your equity release loan (when you pass away or enter long-term care). By using the loan to purchase a second home, you’ll be leaving your heirs a property.
  • Always dreamed of a seasonal holiday locally or abroad? What better way than to do so in your own home.
  • You have additional space if your loved ones need somewhere to stay, without everyone under the same roof.
  • You can spoil your children and grandchildren with trips to the holiday home.

Disadvantages

  • You might not have enough equity in your current home to fully purchase the second home. Furthermore, you may not always qualify for a second mortgage in your old age, making it impossible to use equity release to purchase another property.
  • You’ll have a second property to maintain. Upkeep on 2 homes can be costly and hard work.
  • Purchasing a home can be a stressful process, something that you might not want to worry about in your old age.
  • You could lose out if property pricess plummet.
  • The process of purchasing a second home can be costly so think twice before using equity release to buy a property. Keep in mind any additional expenses such as stamp duty and possible capital gains tax. These can raise the overall price significantly. There will also be ongoing costs to consider, including council tax,1 insurance, and electricity.
  • There are some equity release companies you must avoid in Aug 2022.

What Is the Cost of Second Home Stamp Duty?

The cost of second home stamp duty is 3% higher than what it is for your first home, so consider this before using equity release to buy a new home.

The percentage depends on the value of your new property. This ranges from 3% for a property valued at £0 to £500,000 and 15% if the value of the home is over £1.5 million.

Here are the detailed rates for England and Northern Ireland in Aug 2022:

Property PriceStamp Duty RateStamp duty is a form of tax charged on legal instruments (written documents), and historically required a physical stamp to be attached to or impressed upon the document in question. The more modern versions of the tax no longer require a physical stamp.
£0 – £500,0003%
£500,001 – £925,0008%
£925,001 – £1.5 million13%
Over £1.5 million15%

Stamp duty rates have been changed in recent years.

For example, if you buy a primary residence worth £600,000 in England, you will pay £5,000 in stamp duty (nothing on the first £500,000; then 5% on the next £100,000).

Will I Pay Capital Gains Tax on Second Home?

You will pay capital gain tax on your second home when you sell it.

The amount you pay will be determined by your income tax rate and the amount of money you make from the home.

For basic-rate taxpayers selling a second residential property, the capital gains tax rate paid is calculated using their gain and taxable income, while higher-rate and additional-rate taxpayers will pay 28%.

Common Questions

In Conclusion

Releasing equity from your home is always a big decision. And, even more so if you’re using equity release to buy a new property.

Therefore, your first step is to get in touch with an independent financial adviser.

Your advisor will help you determine the best course of action and guide you through the entire process if you’re considering equity release to buy a second home.

Before You Go…

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