The development of the equity release market in 2011 gathers momentum with the news that New Life Mortgages are set to re-introduce their landlord & second home equity release schemes.
Following the re-emergence to the equity release market of more2life & New Life Mortgagesat the latter end of 2010, we now evidence the launch of an innovative landlord mortgage which signals a degree of diversity to their portfolio.
New Life Mortgages had temporarily withdrawn from the equity release market in 2009. It can be seen they have not been idle during this period, but instead waited for an opportunity to re-enter at the right time & with the right products.
Following on from my previous article on New Life Mortgages rejoining the equity release market in November 2010, here we discuss the features & benefits to landlords of this unique equity release plan.
How does the scheme work?
The equity release landlord scheme provides a tax free cash lump sum which is based on a percentage of the value of the residential property & the age of the youngest applicant. Plans begin age 55 & a landlord with a portfolio of upto 5 rental properties can release a percentage of the equity owned within them.
This form of buy to let mortgage has NO repayment date & NO monthly repayments of capital to make. The loan is finally repaid on the sale of the property which would be when the last surviving borrower has died or gone into long term care.
How do I qualify?
• The minimum age is 55 (for joint applicants minimum age 55 of the youngest)
• The investment property must be in England & Wales
• Minimum property valuation of landlord loan is £100,000 & maximum of £1million
• The minimum release is £25,000 & maximum is £500,000
• Property should be standard construction & flats over 5 storeys are excluded
• If a leasehold property then 80 years must still be remaining on the lease
• An existing mortgage must be repaid at the start of the Landlord scheme
What amount can be borrowed?
This is calculated on the age of the youngest owner & the valuation of the investment properties:-
Age 55 – 16%
Age 60 – 21%
Age 65 – 26%
Age 70 – 31%
Age 75 – 36%
Age 80 – 41%
Age 85+ – 45%
As an example – a 65 year old investment landlord owning an investment property valued at £200,000 could release a capital lump sum of upto £52,000.
How does the landlord scheme compare to a normal lifetime mortgage?
The scheme principally affects the same. The capital is raised, interest then accrues & compounds on a monthly basis and then it is repaid when the property is finally sold.
The differences lie in the rental aspect of the scheme; an existing assured shorthold tenancy agreement must be in place for qualification & the property should not be rented to family members.
Also, there are maximum borrowing criteria, similar to a buy to let mortgage. To qualify, the rental income received must be greater than the monthly income charged on the equity release loan.
How much does it cost to set up?
• Valuation fee is dependent upon the value of the investment property
• Application fee and can be added to the loan
• Solicitors & additional legal fees
• Fixed monthly interest rates – 6.39% (age 55-80) & 6.55% (age 81+)
• Early repayment charges are 5% for the first 5 years. No charges after 5 years.
• An advisor fee charged by your equity release specialist
So how can a landlord equity release help?
The equity release funds can have many purposes.
The buy to let market has remained as popular as ever & rental yields have increased. Many bargains are there to be seen. Should any residential landlord wish to increase their property portfolio, but have concerns over the expenditures in set up costs of buy to let mortgages then the landlord scheme can be considered.
A potential landlord, who witnesses a new investment opportunity, but alas has limited funds for deposit, then the landlord equity release scheme could help. The borrower should assess the values of all properties under his buy to let portfolio & by using the equity release calculator can establish how much equity can be released to bridge any shortfall required.
Another example, with the 55+ age group who are eligible for this buy to let mortgage could be several tax implications.
Should some of the landlords assets require disposal, in preference to selling the property & incurring capital gains tax, then the landlord plan can be applied for instead.
Lastly, debt consolidation will undoubtedly prove to be the most popular reason to release equity. If one is experiencing financial difficulties with repayment of a buy to let mortgage or other personal finances, then subject to the amount that can be raised, then these debts could be repaid.
Alternatively, the landlord could just had enough of paying the buy to let mortgage, but would rather be in receipt of the gross investment rental income which can then provide extra disposable income in retirement?
The uses of the New Life Landlord scheme can be many; so to discuss how the features of this unique buy to let lifetime mortgage can benefit you contact the Equity Release Supermarket team on 0800 783 9652 or email firstname.lastname@example.org