Whether it is a cabin in the British countryside or a villa in sunnier climes, having a holiday home to whisk yourself off to when you need a relaxing break is a dream for many.
If you are looking forward to retirement, this could be a place to spend more time with loved ones and do the things you enjoy.
Alternatively, you might be seeking a base closer to family, if you plan to help out with childcare.
Whatever your motivations, the cost of a second home is an obvious barrier.
However, if you own your own home and are a UK resident over the age of 55, there is an option you may not be aware of.
Equity release may be used to unlock tax-free cash from your existing home, which could in turn be used to buy a second property providing you meet certain requirements.
Golden years: Many dream of buying a second home in which to enjoy their retirement
It is important to consider equity release carefully and make sure it fits your financial circumstances, however.
Sophie Walsh, head of equity release advice at Royal London Equity Release Advisers, says: ‘For some homeowners, equity release can be one way of helping to fund a second property, whether that is driven by lifestyle aspirations such as enjoying more flexibility or a change of scenery, or more practical needs like being closer to family, supporting children or grandchildren, or planning for later life living arrangements.
‘However, it is a major financial decision and one that needs to be considered carefully in the context of someone’s wider circumstances, future needs and long-term plans.’
What is equity release?
A lifetime mortgage is the most popular form of equity release. This allows UK homeowners aged 55 and over to unlock some of the money they have built up in their home over the years, in the form of a tax-free loan.
The amount you can borrow depends on factors such as your age, property value and personal circumstances, but could be up to 58 per cent of your home’s value.
The loan does not need to be repaid until the last homeowner named on the plan dies or moves into long-term care, at which point the property is usually sold to repay the borrowing.
With specialist, whole‑of‑market advice and open conversations with family, equity release can be a positive way to support lifestyle goals or longer‑term plans
Sophie Walsh, head of equity release advice at Royal London Equity Release Advisers
Interest rolls up over time and is added to the loan, meaning the balance will continue to increase for as long as the plan is active unless you choose to make optional monthly repayments.
A lifetime mortgage is a loan secured against your home, will reduce the value of your estate for inheritance purposes and could affect your entitlement to means-tested benefits.
Many homeowners use the money released to carry out home improvements, pay off existing borrowing or gift money to family. However, it is possible to buy a second property using equity release, too – as long as the property the loan is secured on remains your main home.
What counts as a main home?
As with a standard repayment mortgage, most lenders will require that the home you have taken out the loan on is the place where you live most of the time.
In the majority of cases, borrowers will need to be able to prove to their equity release lender that they spend at least six months in the year living in that home.
This does not have to be continuous. For example, you could spend some time each month in your holiday home, as long as the total amount of time did not add up to six months or more.
There is no need to let your lender know when you are staying in your second home, as long as it doesn’t exceed the time limits.
However, you do need to be sure you won’t stay away for longer, as this could breach the terms of the agreement.
Know the rules: Equity release borrowers usually have to spend six months out of the year living in the home the loan is secured on – but this doesn’t have to be continuous
What else do borrowers need to know about equity release?
If you are considering equity release, seeking expert advice from a firm such as Royal London Equity Release Advisers is essential to help you understand the pros and cons. It is also a good idea to involve family members in these conversations.
Royal London Equity Release Advisers’ Walsh says: ‘Equity release allows people to access some of the value tied up in their home without having to move, but the amount owed will grow over time as interest rolls up.
‘While modern products include important safeguards, such as the no‑negative‑equity guarantee, it’s essential that homeowners understand how this could affect their finances in the future and what it may mean for the value of their estate.’
The negative equity guarantee is one of the six product standards put in place by industry body, the Equity Release Council, which apply to all plans provided by its member lenders.
It means that the total amount owed by a customer is capped at the value of their home when it is sold, and they cannot owe more than this amount.
Other protections include having your interest rate fixed for life, having the right to move home subject to lender approval, having a ‘no negative equity guarantee’ and being able to make voluntary, penalty-free repayments up to an agreed limit, subject to lending criteria. This would reduce the total amount owed.
Walsh continues: ‘Buying a second home using equity release is a big decision, and it deserves careful thought.
‘With specialist, whole‑of‑market advice and open conversations with family, it can be a positive way to support lifestyle goals or longer‑term plans. The key is making sure it sits within a well‑considered financial strategy – one that provides confidence for the future, not just a solution for today.’
Your browser does not support iframes.
