Can You Use Equity in Your Home for a Buy to Let Deposit?
Yes. Many Scottish landlords fund their first buy to let by borrowing against the equity in their own home. You can do this through a further advance from your existing lender, a remortgage to a new lender or a second charge mortgage. MoneyHelper lists raising a deposit for a buy to let as one of the situations where a further advance can make sense.
The catch is that you are increasing the debt secured on the home you live in. You need to be able to afford both mortgages if the rental property is empty, rates rise or tenants stop paying. The released equity also has to cover more than the deposit, because LBTT and the 8% Additional Dwelling Supplement are paid in cash.
What Equity Is and How Much You Can Release
Equity is the difference between what your home is worth and what you still owe on it. If your home is worth £300,000 and your mortgage balance is £150,000, you have £150,000 of equity.
You cannot release all of it. A lender will only lend up to a maximum loan to value (LTV) on your home, and it will also check that you can afford the higher monthly payments. MoneyHelper says that before applying for a further advance you should have:
- a good credit record
- equity in the property, meaning the home is worth more than the mortgage you owe
- confidence that you can afford the extra monthly payments
The lender will look at your income and outgoings and stress test the new borrowing, to check that you could cope if interest rates rise or your circumstances change.
Three Ways to Release Equity
| Option | How it works | Things to watch |
|---|---|---|
| Further advance | You borrow more from your current lender, usually on a separate rate to your main mortgage | Check that the rate is competitive and ask whether you can borrow over a shorter term |
| Remortgage | You move the whole mortgage to a new lender and borrow more at the same time | Early repayment charges on your current deal, plus new arrangement and legal fees |
| Second charge mortgage | A separate loan secured on your home from a different lender | Rates can be much higher than a first mortgage, and you end up with two loans on your home |
MoneyHelper suggests checking the wider market before taking a further advance. Remortgaging only makes sense if the saving is greater than the fees and any early repayment charges.
How Buy to Let Lenders View a Borrowed Deposit
Buy to let lenders want to know where your deposit comes from. Equity released from your own home and secured on it is a common and widely accepted source, because it is your own money, borrowed against your own asset.
Unsecured borrowing is different. Lenders are generally reluctant to accept a deposit funded by a personal loan or credit card, because it adds a debt with no security behind it. It also suggests the purchase is stretching your finances. Always tell both lenders the purpose of the borrowing. Be open with your mortgage broker about where the deposit is coming from, because lender policies differ.
Remember that the buy to let mortgage is assessed mainly on the rent. MoneyHelper notes that the rent usually needs to cover 125% to 145% of the monthly mortgage payment. Some lenders also want you to have personal income of around £25,000 a year or more.
Working Out How Much Cash You Need
In Scotland, the deposit is only part of the cash required. Because you already own your home, the buy to let purchase will almost always attract the 8% Additional Dwelling Supplement on the whole price, as well as standard LBTT. Legal fees, outlays and lender fees come on top.
Example: releasing equity to buy a £160,000 flat
Your home is worth £300,000 and you owe £150,000, an LTV of 50%.
Cash needed for the flat
Deposit at 25%: £40,000
LBTT: £300 (2% on the £15,000 above £145,000)
ADS at 8% of £160,000: £12,800
Total before fees: £53,100
Funding it
You release £55,000 from your home, leaving about £1,900 towards legal and lender fees.
New mortgage on your home: £205,000, an LTV of about 68% (£205,000 ÷ £300,000)
Buy to let mortgage on the flat: £120,000
Your position afterwards
Total property value: £460,000
Total borrowing: £325,000
Overall LTV: about 71% (£325,000 ÷ £460,000)
The example shows something investors often underestimate. Of the £55,000 released, £13,100 goes on tax that does not add to your equity in the flat. That money has to be recovered through rent and any future growth in value.
The Risks to Weigh Up
Borrowing against your home to invest is a decision about risk as much as returns. Before you go ahead, consider these points.
- Your home is security for the loan. If you cannot keep up the higher payments on your home mortgage, your home is at risk, even if the problem started with the rental.
- Void periods. There will be times when the flat is empty, or when rent is not paid. MoneyHelper advises having a plan to keep up mortgage payments when no rent is coming in.
- Rate changes. Both mortgages are exposed to interest rate rises. Stress test your budget at higher payments than you pay today.
- Interest-only borrowing. Most buy to let mortgages are interest-only, so the loan does not reduce. You need a plan to repay it at the end of the term. Do not assume you can sell the property for more than you owe, because prices can fall.
- Tax on the interest. Mortgage interest on the buy to let only attracts basic rate tax relief. Interest on equity released from your home and used to buy the rental may be treated as a finance cost of the letting business, but get advice from an accountant before relying on this.
Steps to Take Before You Apply
- Get an up-to-date idea of your home's value and your outstanding balance.
- Check your current mortgage deal for early repayment charges and the lender's further advance policy.
- Work out the full cash cost of the purchase, including LBTT, ADS and fees. Our guide to the buying process in Scotland lists the costs.
- Speak to a mortgage broker who arranges buy to let lending in Scotland, so that the equity release and the buy to let mortgage are planned together.
- Keep a cash buffer for repairs, safety certificates and empty months, separate from the money used for the purchase.
Related Information
Related Questions
Is it better to use savings or equity for a buy to let deposit?
Savings avoid adding debt to your home, so the purchase carries less risk. Releasing equity lets you invest without using your savings, but it increases what you owe on your home. Many investors use a mix and keep some savings back as a reserve.
Can I release equity if my home is on a fixed rate deal?
Often you can, through a further advance from your current lender, which may not trigger early repayment charges. Moving to a new lender during a fixed rate period usually does trigger them. Check your mortgage offer or ask your lender before deciding.
Does releasing equity affect how much I can borrow on the buy to let?
The buy to let loan is assessed mainly on the expected rent, but the lender will still look at your overall finances, including your higher home mortgage payment. A larger home mortgage can reduce what some lenders are willing to offer.
Can I use equity from a property I already let?
Yes. Some landlords remortgage an existing rental property to fund the next deposit. The same principles apply. The rent on the existing property must still cover the larger buy to let mortgage under the lender's rental test.
Sources
- MoneyHelper: Increasing your mortgage, getting a further advance
- MoneyHelper: Buy-to-let mortgages explained
- Scottish Government: LBTT review, policy evaluation 2025-2026 (ADS background)
This guide is general information, not financial, tax or legal advice. Rules change, so check your own position with a qualified adviser before you act.