Equity Release To Buy a Holiday 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, we’re receiving more enquiries for customers looking at buying property abroad. If you’re exploring your options as to which country and currency you may choose for buying your second home and how to finance the purchase, we can help explore your options in confidence.

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

To buy a second home you can arrange a lifetime mortgage against the value of your current home & main residence. The 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!

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, we provide expert financial services as a specialist broker. We’ll fully research the market and source the best solution.

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: Later Life Finance typically charge £1,490 on completion, which includes an annual review of your options to ensure you’re on the best plan for your needs

What Are The Equity Release Options for Buying A Second Home?

Lifetime Mortgages: The Most Popular Way To Remortgage & Release Equity

This is the most commonly chosen equity release product in the UK. With a lifetime mortgage, homeowners aged 55 and over borrow money 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
Available on acceptable and leasehold properties.
Housing Market liquidity has provided homeowners with the power to unlock equity to expand their portfolio

Lump Sum Lifetime Mortgage

Lifetime mortgages allow homeowners to remortgage and release equity from their property in order to fund a second home purchase. This type of mortgage is designed for individuals aged 55 and over who own their primary residence and are looking to access additional funds.

Flexible repayment options
No monthly repayments required
Interest compounds over time, regular repayments can also be made
Capped interest rates to protect against rising costs

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

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Interest Only Lifetime Mortgage

Regular interest payments are made to help preserve equity
Can be arranged with a drawdown option for even more flexibility

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.

What Equity Release Scheme Works Best for a Second Home?

Lenders require your main residence home to be used as security, not the second home itself. If the goal is to release capital for buying or improving a second residence – say, a holiday home or future downsizing option – a lifetime mortgage or drawdown plan often delivers the needed flexibility. Home reversion plans can also fund these purchases, but the trade-off in long-term ownership might not appeal to everyone. If you’ve a portfolio of BTL properties, you may choose to sell a property to raise funds as an alternative option.

Using equity release to fund a second home focuses on balance: access to capital now, without compromising housing stability later. Consider how quickly the funds are needed, whether partial ownership is acceptable, and how compound interest fits into your financial picture before choosing your scheme.

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: Every Stage That Matters

1. Initial Advice Consultation (Day 1-7): 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 Cornwall

When Mark and Sheila, both in their early 70s, unlocked £180,000 from their primary residence in Sussex through a lifetime mortgage, their vision of owning a coastal retreat in Cornwall became reality. With their property valued at £550,000 and no outstanding mortgage, they qualified for a release amount that covered the full asking price of a modest cottage in Fowey. They used 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: “We’ve essentially multiplied our happiness without selling any part of our original home. Equity release gave us flexibility and control.”

Case Study: Supplementary Income and a City Flat 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

Can I use equity as a deposit for a second home?

Yes, you can potentially use equity released from your current home as a deposit for a second property.

It’s crucial to carefully consider the implications of equity release, including reduced equity in your main residence and potential impact on inheritance.

Seek professional financial advice to determine if this is the right option for your circumstances.

What does Martin Lewis think about equity release?

Martin Lewis does not explicitly recommend or disregard equity release. As he is not a qualified equity release adviser, he refrains from giving specific advice on whether it’s a suitable option for individuals

Ready to Take the Next Step Toward Your Second Home?

Ready to explore what’s possible for your situation? Help is one conversation away.

Our experts have been guiding homeowners through the equity release process for years and can tailor their advice to match your unique goals.

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Speak to us directly: Call 0800 2465119 or email advice@later-life-finance.co.uk
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Equity release FAQs

What is the downside to equity release?

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.

Do I need an advisor for equity release?

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.

What does Martin Lewis think of 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.

Is there a catch to equity release?

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.

How long does it take to arrange equity release?

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.

Do you need an LPA for equity release?

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.

Can you use equity release for anything?

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.

What is the most popular form of equity release?

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)

how long does equity release take

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.

What is the typical interest rate for equity release?

In July 2023 the lowest Equity Release rate is currently 6.03% (Monthly Equivalent Rate) fixed for life. The highest interest rate in the market is currently 8.64% (Monthly Equivalent Rate).