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Equity Release To Buy a Holiday Home

Can i use equity release to buy a second home

How do I use equity release to buy a second home?

If you’re dreaming about a second home by the beach and holidays in the countryside, releasing equity from your main home can help turn that dream into a reality.

With the new council tax rules imposed for second homes in the UK, we’re receiving more enquiries for customers looking at buying property abroad.

Modern lifetime mortgage plans allow voluntary repayments and can even be repaid early for added flexibility.  We can help you explore your equity release options in confidence. 

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How do I use equity release to buy a second home?

To finance a second home purchase, a lifetime mortgage against the value of your existing home provides access to tax-free equity in around 6-8 weeks to provide the finance required. 

The lifetime mortgage is repaid when you, or the second owner (if a joint loan) dies or goes into long-term care. This gives you the financial buying power in your bricks and mortar home to buy your dream holiday property. 

What does the process involve?

  • Get started with our equity release calculator to give you an idea of how much you can release, or book a free call back to get more accurate figures & we can answer your questions
  • Start your search for the second home you’re considering remortgaging to release equity
  • When you’re ready, we’ll guide you through the process. As a specialist broker we’ll explain all your options, fully research the market and source the best solution to meet your needs.
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What Are The Equity Release Options for Buying A Second Home?

An older couple discussing releasing equity for a second property

Using Lifetime Mortgages For Buying a Second Home

This is the most popular equity release product in the UK. With a lifetime mortgage, homeowners aged 55 and over borrow equity secured against their main property while retaining full ownership. Unlike a typical repayment mortgage, the loan amount, plus compound interest, is usually repaid from the sale of the home after death or a move into long-term care. The remaining balance is distributed to your estate.

  • Interest can be rolled up or repaid monthly
  • No income checks & credit history isn’t a factor for lending with most providers, meaning there’s no risk of repossession if payments are not made
  • Option to take as a lump sum or drawdown
  • You continue to maintain home insurance on the property
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Lump Sum Lifetime Mortgage

Lifetime mortgages allow you to remortgage and release equity from your home in order to fund a second home purchase. 

Benefits include:

Calculate How Much You Can Borrow With a Lifetime Mortgage Below & Book A Free Adviser Call Back 

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Drawdown Lifetime Mortgage: Take What You Need, When You Need It

A popular method of setting up a lifetime mortgage is drawdown plan. If you don’t need the full amount of equity you’re potentially planning on raising in one lump sum, staging the money over time has several benefits. 

  • Only pay interest on money you actually borrow
  • Have full control of the money
  • Still pay interest on the funds borrowed
  • No pressure or obligation to take a penny more than you need

Interest Only Lifetime Mortgage

An interest only lifetime mortgage helps avoid the issue of compound interest accruing against your home. 

  • Regular interest payments are made to help preserve equity
  • Can be arranged with a drawdown option for even more flexibility
  • You can select your preferred interest payments
  • No risk of default, payments can be stopped if your circumstances change
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Home Reversion Plans: Selling for a Share

Unlike a lifetime mortgage, a home reversion plan means selling a percentage of your home to a provider in exchange for a tax-free lump sum or regular payments. You continue living in the property rent-free, but you no longer own it in full.

  • Only available to homeowners aged 60 and over.
  • No interest is charged since it’s not a loan.
  • The portion sold belongs to the provider – they receive that share of the final sale value.

When considering releasing equity for a second home, it’s important to factor in the various costs involved in the process. These costs include:

  • Legal Fees: A solicitor is involved with the equity release process. They typically charge around £800 on completion.
  • Arrangement Fees: Some lenders may charge arrangement fees for setting up an equity release agreement on your second home
  • Broker fee: Brokers typically charge around £1,490 on completion. With Later Life Finance, this includes an annual review of your options to ensure you’re on the best plan for your needs

Tax Considerations

Equity release funds are not usually subject to Income Tax because they are a loan, not income. So if you’re planning to put those funds toward a second home, the original cash injection itself doesn’t trigger tax liabilities. However, other aspects do come into play.

  • Capital Gains Tax (CGT): If you eventually decide to sell your second home, any profit made could be subject to CGT. 
  • Stamp Duty Land Tax (SDLT): Purchasing a second home in England and Northern Ireland triggers a surcharge on top of the standard SDLT rates, regardless of property value. In Scotland and Wales, different surcharges apply under LBTT and LTT regulations.
  • Inheritance Tax (IHT) Considerations: Releasing equity with a mortgage reduces the value of your estate, which may help reduce your IHT liability. However, gifting the proceeds to family to reduce taxable estate value requires careful timing and planning, as gifts made within seven years of death may still be taxed. Expert wealth management advice can help you understand all your options. Our equity release and inheritance tax guide is a useful source of information on the main points to consider. 

Step-by-Step Timeline to releasing your equity

1. Initial Advice Consultation (Week 1):  During your first meeting-either in person, by phone or video link, our qualified equity release advisers will talk through your goals, aspirations and any concerns. 

2. Recommendations & Product Selection (Week 2): Once your adviser has all the necessary details, they’ll recommend a suitable equity release scheme. These options come with illustrations and interest projections, showing your future obligations and inheritance impact, helping you decide whether it’s right for you. 

3. Application Submission (Week 2-3): After choosing your plan, your adviser will complete and submit the application to the lender for processing. 

4. Property Valuation (Week 3-4): The lender arranges for an independent chartered surveyor to confirm your home’s market value. This valuation confirms how much equity can realistically be released.

5. Offer Issued (Week 4-5): A formal offer is issued which includes the loan amount, interest rate, costs, and terms. 

6. Legal Advice & Paperwork (Week 5-6): Your solicitor will arrange an appointment to ensure you fully understand the mortgage contract before signing. The equity release council certificate is also signed. The solicitor also handles the legal pack submission to the lender.

7. Completion & Fund Release (Week 6-8): Once the mortgage documents are signed and legal work is complete, the funds are released. This typically happens within 2 working days of formal completion.

Case Study: Unlocking a Holiday Home in Puglia

Equity release for a second home

a When Mark and Sheila, both in their early 70s, unlocked £180,000 from their home in Sussex with a lifetime mortgage, their vision of owning a retreat in Puglia became a reality. We arranged a drawdown facility, opting to take only what they needed upfront and reserving the rest for future home upgrades.

They now split their time between homes, and their children regularly use the second property as well. Mark commented: “Equity release gave us flexibility and control.”

Case Study: Income boost and a city escape for spending time with the Grandchildren

Alice, 74, lives in a fully paid-off detached home in the Midlands worth £420,000.

She released £120,000 using a lump sum lifetime mortgage. £75,000 went towards purchasing a small flat in Manchester near the university-allowing her two grandchildren to avoid hefty student accommodation fees. The remaining funds were invested in an annuity to generate a modest monthly income.

  • Property type: Detached house, fully owned
  • Equity released: £120,000
  • Use of funds: City flat purchase and income supplement
  • Outcome: Family cost savings and enhanced financial independence

Ready to Take the Next Step Toward Your Second Home?

Our experts have been guiding homeowners through the equity release process for many years. Get in touch for expertise and knowledge you can rely on. 

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Equity release FAQs

The main downside to equity release is the effect of compound interest on the most common type-the lifetime mortgage. However, this interest effect can be avoided or reduced with voluntary repayments. The equity release council included voluntary repayments as a requirement for lenders to meet their strict codes of conduct. The ability to make voluntary, penalty-free partial repayments was made a compulsory feature for all products to meet Equity Release Council standards from March 2022.
Prior to finalising your decision on equity release, it is crucial to seek financial guidance with a qualified equity release adviser. Discussing your plans with an independent equity release adviser will enable you to compare the whole market, and your adviser will identify the most suitable solution to match your specific circumstances. Additionally, should you opt to proceed with equity release, it is essential to obtain legal advice. Your adviser will be able to suggest an independent solicitor who specialises in equity release.
While Martin Lewis does not provide a direct endorsement for equity release, he acknowledges that under specific circumstances, it can be a viable solution to access funds tied up in your home to meet living costs and provide financial security. Where downsizing has been ruled out, for example, Martin Lewis has a balanced view on the concept of equity release and it's benefits to homeowners seeking extra funds in later life, and advises independent advice on equity release is obtained.
Equity release provides you with a cash lump sum or a drawdown facility to take the cash over a longer timeframe. The "catch" with equity release is that the money released from your home, plus interest will need to be repaid when the property is eventually sold. With a Lifetime Mortgage, you will owe the money borrowed plus the loan interest accrued. If you make voluntary repayments to the mortgage this will help reduce the amount of interest repayable on the mortgage, and will help maximise any inheritance your beneficiaries may receive.
It takes between six and eight weeks for an equity release application to complete and to receive your funds. The timescale depends on whether you have a mortgage to repay from the money taken, and whether there are any legal processes which may delay the process, such as moving home or changing the title.
A lasting power of attorney, or LPA is not required to setup an equity release plan. However, having an LPA in place is important to ensure access to further funds from a drawdown plan if you ever lose capacity to make your own decisions, or cannot sign your wishes for physical reasons, such as a stroke. If you have not set up an LPA and it is required, the Court will need to appoint a deputy for you. Planning ahead is prudent to ensure you have arranged such measures in case an LPA is required in the future, and this can save a great deal of stress if and when the time comes to use the LPA.
Equity release funds are tax-free and can be used for anything you wish (providing any existing mortgage is repaid from the funds). Popular uses of equity release funds include repaying mortgages and unsecured debt, home improvements, a cash boost, purchasing second homes, and helping family with a financial gift.
Lifetime mortgages are the most popular form of equity release and provide the flexibility to move home and make voluntary payments, if preferable. Equity release customers unlocked £1.6 billion in property wealth in Q2 of 2022. (Equity release council)
An equity release application should take around eight weeks until you receive your equity release funds. This depends on whether you have an existing mortgage to repay and if any changes to the title are required, which can increase the timescale to arrange.
The lowest Equity Release rate is currently 6.36% (Monthly Equivalent Rate) fixed for life. The highest interest rate in the market is currently 9.50% (Monthly Equivalent Rate).