Buy To Let Capital Raising / Equity Release 

Buy-to-let properties are a way of a landlord earning ongoing rental income from tenants occupying the property.

But many people do not know that they can be used in another way. You can use a buy-to-let property to capital raise and release equity from the property to then meet various goals, such as expanding the landlord’s property portfolio or completing home improvements to the property. 

And in this brief guide, we’ll be looking at whether buy-to-let is a worthwhile option for releasing equity, how to do so, and what are some other alternatives. 

What Is Capital Raising?

Capital Raising can be defined as the process of accessing financial resources or equity that has been accumulated by building up capital in investment properties. 

What Is A Buy-To-Let Capital Raising / Equity Release Mortgage?

A buy-to-let mortgage can allow the landlord to release capital from a property used for earning rental income. 

This equity can then be used for various purposes, such as investing in a new property or making home improvements.

The purpose of the capital raised will be a big factor in choosing the correct buy to let remortgage lender. 

Some lenders will have more stringent guidelines over the purposes of capital raising whereas some lenders will be more flexible and allow you to capital raise for any legal purpose. 

The equity from buy-to-let properties can be released in different ways, the most common of which is remortgaging. 

But you should keep in mind that finding a lender who is willing to allow capital raising from buy-to-let properties is not always an easy task. 

Additionally, such lenders can have strict criteria that should be met before the landlord being allowed to release the equity from the property.

While these can differ slightly from lender to lender, criteria usually depends on the equity in the property, tenants, occupancy, and similar factors.

For buy-to-let capital raising, most lenders require landlords to have a residential property in the UK. 

You can release equity from a buy-to-let property by remortgaging it, which frees up capital that can be used elsewhere. 

However, the number of lenders willing to provide this type of loan can be pretty limited, a lot of it will come down to the justification of why you are raising the capital as has been discussed above. 

How Does Raising Capital from a Buy to Let work? 

When you take out a buy-to-let capital raising/equity release mortgage, the lender usually places a charge on the property concerned, allowing the release of capital. This capital in almost all cases is released as a lump sum. 

Any active buy-to-let mortgage taken out will need to be repaid monthly, this is usually chosen by the landlord as either Capital & Repayment or Interest Only. 

What Is The Amount Of Equity That Can Be Released?

The exact amount of equity that can be released is usually determined by the properties rental income & the level of equity within the property – most BTL lenders do not allow the re mortgage to exceed 75% of the properties value.  

Buy-To-Let Capital Raising / Equity Release Eligibility Criteria

1. Equity 

You should hold enough equity in the buy-to-let property when taking into account the loan to value ratio of the mortgage. Most buy to let lenders will require 25% equity as a minimum in the property to permit the re mortgage. 

2. Current Tenants 

The buy-to-let property should not be vacant. Certain lenders may allow you to capital raise and complete a remortgage when there is not currently a tenant but there will be future expectations within there criteria of when the property should be tenanted. 

3. Tenancy Agreement

There should be an assured shorthold tenancy agreement in place with the tenants. Typically lenders as either part of the mortgage application or during conveyancing may ask to see a tenancy agreement to ensure it is within their criteria. 

4. Rental Income 

The rental income must meet the lender’s rental income affordability assessment. As a very general rule the rental income must be either 125% – 145% of the mortgage repayments.

Different lenders will use a different interest rate for calculating the mortgage payment to then base the 125% – 145%. 

Tenants And Buy to Let Capital Raising/Equity Release

There is a simple reason why most lenders offering a buy-to-let capital raising/ equity release remortgage require the property not to be sublet in any manner and have strict stipulations over the tenancy agreement. 

They want the security that if they were to repossess the buy to let property, there would be as few issues as possible. 

That is also why mortgage lenders require full disclosure of your contract with the current tenants when applying for the loan. 

Buy-To-Let Equity Release Alternatives

Apart from buy-to-let capital raising /equity release mortgages, there are a few alternatives available that may be used for the same purpose. 

1. Secured Loans 

A secured loan might be ideal if you’re ineligible for a capital raising/equity release first charge buy to let re-mortgage. 

It allows taking out a second mortgage against the equity of the property, that charge will rank behind the first charge mortgage lender in the event of repossession. 

Due to this the cost is usually higher, however may be a suitable alternative for certain circumstances. 

2. Further Advance

This means you can borrow some additional funds with your current lender, the further advance usually acts as another subpart alongside your current buy to let mortgage. 

Again the affordability assessment for the further advance will be assessed against the rental income for the property. 

FAQs 

1. Is selling the property a good alternative to a buy-to-let capital/raising equity release mortgage?

Selling the property may be another alternative, allowing you to pay off the mortgage completely and keep the surplus sale proceeds (please take into account the added cost of sale into your calculations when working out the remaining equity).  

2.. Are Buy-to-Let Capital Raising/Equity release loans regulated or unregulated?

Most buy to let mortgages are not regulated by the financial conduct authority. However there are instances where some may be regulated such as where the landlord has previously lived in the property or they have received it through an inheritance.  

Conclusion 

A buy-to-let capital raising/equity release mortgage is just one of the various schemes that allow you to free up capital locked in your investment property or properties. 

There are several alternatives available to free up the capital that offer various advantages and disadvantages and may be suitable for different requirements such as secured loans, further advances or even selling the property ultimately . 

If you’re a landlord wanting to make a start, we believe it is best to consult a mortgage broker. They can look at your requirements and offer professional advice 

For those who have already decided on applying for a capital raising/equity release mortgage, professional brokers can provide much-needed guidance to make the application process easier.

**A buy to let mortgage will be secured against your property.

Some types of buy to let mortgages are not regulated by the Financial Conduct Authority.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.