Are you aiming to expand your property portfolio to achieve the financial freedom we all dream of? If so, what’s holding you back? Is it the time required to find the right properties, or the capital needed for deposits?
Perhaps, like many others we work with, you’re cash-poor but equity-rich and eager to invest. If that sounds like you, we may have the perfect solution.
We’ve partnered with a reputable local mortgage company that specialises in helping property investors secure the financing they need. Here’s how they can help:
- Equity Release: Unlock equity from your residential home or property portfolio for new investments or to enhance your current holdings.
- Flexible Financing: Access short-term solutions like bridging loans and second charges.
- Fixed-Rate Equity Release: Even if you’re locked into a fixed rate, they can help release equity.
- Whole of Market Access: Get the best rates and products tailored to your needs.
- Development Finance: Whether your project is big or small, they offer solutions to suit.
- Quick Turnaround: From application to mortgage offer, the average timeline is under 10 days!
In the fast-paced property market, time is money, and securing financing quickly can make all the difference. That’s why many investors continue to rely on their expertise.
They’re already assisting some of our clients in releasing equity from their current properties, allowing them to reinvest, grow their portfolios, and boost their monthly cash flow.
For more information on releasing equity enter your contact details below and we will get back to you.
Should You Release Equity From Your Property to Invest in Another Property?
If you already own property, you may have built up a significant amount of equity.
But what if you could use some of that equity to help fund your next property investment?
For many property investors, releasing equity can be a way of turning existing property wealth into capital that can be used to purchase another investment property, fund a refurbishment, provide a deposit or build a larger portfolio.
However, borrowing against your property also increases your debt and your financial commitments.
So the question isn’t simply:
“Can I release equity from my property?”
It is:
“Could releasing equity help me build my property portfolio, and does the investment justify the additional borrowing?”
What Does “Releasing Equity” Mean?
In simple terms, equity is the difference between what your property is worth and the amount you still owe on your mortgage.
For example:
Property value: £300,000
Mortgage outstanding: £150,000
Equity: £150,000
That doesn’t necessarily mean you can simply withdraw the whole £150,000.
A lender will consider factors such as your income, affordability, existing borrowing, loan-to-value requirements and the property itself before deciding how much additional borrowing may be available.
The additional borrowing could potentially be raised through a remortgage or, depending on your circumstances, a second-charge mortgage. MoneyHelper explains that both routes can be used to raise money against property, although they have different costs and implications.
Why Would a Property Investor Release Equity?
There are several potential reasons.
1. To provide a deposit for another investment property
Perhaps you own a home or investment property that has increased in value.
Rather than selling it, you could potentially raise some of the available equity and use the money towards the deposit on another property.
This could allow you to control a second asset without having to save the entire deposit from your income.
2. To fund a property refurbishment
You might identify a property that requires substantial work before it reaches its full rental or resale potential.
Released equity could potentially provide some or all of the refurbishment budget.
This can be particularly relevant to investors using a buy-refurbish-refinance strategy.
3. To purchase below-market-value opportunities
Property opportunities sometimes require investors to move quickly.
Having access to capital can potentially make it easier to act when a suitable property becomes available.
The important point is that the investment should make financial sense after taking account of the additional borrowing and its costs.
4. To build a larger property portfolio
Some investors use equity from existing properties to help fund deposits for additional purchases.
Over time, this can potentially create a cycle:
Existing property → release equity → buy another property → add value → refinance → potentially release further equity
This is one of the strategies sometimes used by property investors seeking to grow a portfolio.
However, leverage works both ways. If property values fall or rental income doesn’t meet expectations, having more borrowing can increase the financial pressure on the investor.
Could Releasing Equity Help You Buy More Property?
This is where investors need to look at the numbers carefully.
Imagine you own a property worth:
£300,000
with a mortgage of:
£150,000
You have £150,000 of equity.
Suppose a lender is prepared to increase the borrowing to £210,000.
You could potentially release:
£60,000
before taking account of any fees and costs.
That £60,000 could potentially become a deposit and associated purchase costs for another investment property.
You have therefore used some of the equity in an existing asset to help acquire another.
But remember:
The £60,000 isn’t free money.
It is additional borrowing secured against property.
Your mortgage debt has increased from £150,000 to £210,000, and you will have additional interest and potentially other mortgage costs to pay.
What Could Be the Benefits?
For the right investor and the right property, releasing equity can offer several potential advantages.
Access to capital without selling
You may be able to access some of the wealth tied up in your property while continuing to own it.
Potential to expand your portfolio
Instead of waiting years to save another deposit, available equity could potentially provide capital for another investment.
Potential to diversify
Rather than having most of your wealth tied up in one property, you could potentially spread your investment across several properties or locations.
Potential to fund improvements
Equity could potentially be used to improve an existing property, potentially increasing its rental income or value.
Potential to take advantage of opportunities
Property investors sometimes come across opportunities where speed matters.
Having capital available can make it easier to move quickly.
But What Are the Risks?
This is arguably the most important part of the decision.
You are increasing your debt
When you release equity, you are borrowing against your property.
Your mortgage balance increases and so does the amount you ultimately need to repay.
Your property is security for the borrowing
A mortgage or second-charge loan is secured against property.
If you cannot maintain the required repayments, there can be serious consequences, including the risk of losing the property. MoneyHelper specifically highlights that failing to repay a mortgage secured against your property can put the property at risk.
Interest rates can affect the numbers
If your borrowing becomes more expensive, your monthly costs could increase.
You therefore need to test the investment against different interest-rate scenarios rather than simply calculating the deal using today’s rate.
Property values can fall
Property prices don’t always rise.
If the value of your existing property falls after you have increased the borrowing, your loan-to-value ratio could become less favourable.
MoneyHelper notes that falling property values can make future remortgaging more difficult.
Your investment property may not perform as expected
Perhaps the rental income is lower than anticipated.
Perhaps the refurbishment costs more.
Perhaps the property remains empty for several months.
Perhaps interest rates increase.
Perhaps the property takes longer to sell.
You need to consider what happens if things don’t go according to plan.
The Most Important Question: What Will You Do With the Money?
Before releasing equity, you should be able to explain exactly what the money is going to be used for.
Compare these two approaches:
“I have £50,000 of equity, so I want to release it.”
versus:
“I have identified a £200,000 investment property. I need £50,000 for the deposit and purchase costs. The property is expected to generate £X in rental income and the projected costs are £X.”
The second approach is much more investment-led.
Ideally, you should identify the opportunity before taking on the additional borrowing.
Does the Investment Produce Enough Income?
If you’re releasing equity to buy a rental property, calculate the numbers carefully.
For example:
Expected monthly rent: £1,200
Less:
- Mortgage costs
- Additional borrowing costs
- Management fees
- Insurance
- Maintenance
- Service charges
- Ground rent, where applicable
- Licensing costs
- Void periods
- Tax
- Other property expenses
What is left?
And importantly:
What happens if the property is empty for three months?
What happens if interest rates increase?
What happens if you have a £5,000 unexpected repair bill?
A good investment calculation should allow for these possibilities.
Could You Release Equity to Fund a Property Deposit?
This is one of the most common reasons investors consider releasing equity.
However, don’t assume that a lender will automatically allow you to borrow the amount you want.
Your lender will assess affordability and other lending criteria.
The amount you can raise can depend on factors including:
- Current property value
- Existing mortgage
- Income
- Existing debts
- Credit history
- Age and circumstances
- Loan-to-value requirements
- Type of property
- Intended use of the funds
- Lender’s criteria
A professional mortgage adviser can help you establish what options may be available.
What If You Have a Large Amount of Equity?
Having substantial equity can create opportunities, but it doesn’t necessarily mean you should borrow against all of it.
For example, if your property is worth £400,000 and you owe £150,000, you may have considerable equity.
But that doesn’t mean you should maximise the borrowing simply because the lender will allow it.
One approach is to ask:
“How much do I actually need to make the next investment work?”
Borrowing less can mean lower monthly commitments and a larger equity cushion if property values fall.
MoneyHelper also warns that remortgaging or increasing borrowing against a home can have significant long-term implications, so the additional debt should be considered carefully.
What About Releasing Equity From an Investment Property?
The principle can also apply to properties already held within a portfolio.
For example, an investor may own:
Property A
Value: £250,000
Mortgage: £100,000
If the property’s value has increased and the investor has built up additional equity, there may be an opportunity to refinance and use some of that equity towards another investment.
This is sometimes referred to as portfolio recycling or using existing property equity to fund further acquisitions.
But once again, the additional borrowing needs to be supported by a realistic investment strategy.
Before You Release Equity, Ask Yourself These 10 Questions
1. Why am I releasing the money?
Can I clearly explain what the capital will be used for?
2. What investment am I planning to make?
Have I identified the property or investment opportunity?
3. What will the additional borrowing cost?
Have I included interest, arrangement fees, valuation fees, legal costs and any early repayment charges?
4. What will my monthly commitments become?
Can I comfortably afford them?
5. What happens if interest rates rise?
Would the investment still work?
6. What happens if property values fall?
Would I still have sufficient equity?
7. What happens if the property is empty?
Could I continue making the mortgage payments?
8. What happens if the investment costs more than expected?
Do I have an emergency fund or contingency?
9. What is my exit strategy?
If I eventually want to reduce my borrowing, how will I do it?
10. Am I comfortable with the additional risk?
Would I still be comfortable with the decision if the property market fell or the investment underperformed?
Don’t Confuse Equity Release With Releasing Equity
There is an important distinction.
Property investors commonly use the phrase “equity release” to describe raising additional borrowing against an existing property.
However, equity release is also the name commonly used for specialist later-life financial products such as lifetime mortgages and home reversion plans.
These products have different rules, eligibility requirements, costs and implications. MoneyHelper explains that lifetime mortgages are loans secured against a home, while home reversion involves selling all or part of the property in exchange for a lump sum.
If you are a property investor looking to raise capital for another investment, you may instead be considering a remortgage, further advance or second-charge mortgage.
Make sure you understand exactly which type of finance you are considering.
Is Releasing Equity Right for You?
There is no universal answer.
For some property investors, releasing equity can be a useful way of accessing capital and potentially growing a property portfolio without selling existing assets.
For others, taking on additional borrowing may introduce too much financial risk.
The key is to look at the investment opportunity and the finance together.
Don’t simply ask:
“How much equity can I release?”
Instead ask:
“How much do I need, what will it cost me and what return do I realistically expect to generate from using it?”
If the investment produces sufficient income or capital growth to justify the additional borrowing, the strategy may be worth investigating.
If the numbers only work when everything goes perfectly, additional leverage could make an otherwise marginal investment significantly more risky.
Property Secrets’ Key Question
Could you use the equity you have built up in one property to help acquire another?
Possibly.
But before you do, calculate the complete investment picture.
Property value → available equity → additional borrowing → finance costs → new investment → rental income/value → tax and expenses → potential return → downside scenario.
The objective shouldn’t simply be to borrow as much as possible.
It should be to use property equity carefully and strategically, while making sure you understand the additional financial commitments and risks.
Always seek appropriate regulated mortgage and financial advice before releasing equity or increasing borrowing against your property.