HELOCs are popular in the US, but UK lenders have now introduced similar products, offering investors a flexible way to borrow against home equity.
In this guide, we’ll cover:
What a HELOC is and how it works in the UK How investors can use a HELOC for Buy-to-Let, auctions, and refurbishments Case studies of investors successfully using HELOCs Pros, cons, and lender considerations
What Is a HELOC?
Key Features of a HELOC
Example: If your home is worth £500,000 and your mortgage balance is £250,000, you may be able to access up to £125,000 via a HELOC (assuming a 75% loan-to-value limit).
Flexible Borrowing: Withdraw and repay as needed.
Secured Against Home Equity: Usually up to 75% of your property’s value.
Interest-Only Payments: Lower monthly repayments than traditional loans.
Use for Any Purpose: Property purchases, refurbishments, deposits, or debt consolidation.
How Property Investors Can Use a HELOC?
Property investors can use HELOCs in various ways to expand and improve their portfolios:
1. Buying Investment Properties
A HELOC can be used as a deposit for a Buy-to-Let mortgage or to purchase auction properties outright.
Exmple:
Sarah, a homeowner, has £150,000 in accessible equity. She takes a £75,000 HELOC and uses it as a 25% deposit on a Buy-to-Let mortgage for a £300,000 rental property.
2. Refurbishing and Adding Value
HELOCs can provide quick-access funds for renovations to increase property value or improve rental yields.
Example:
John uses a £40,000 HELOC to refurbish a run-down property, increasing its value by £80,000. He then refinances onto a standard Buy-to-Let mortgage and repays the HELOC, keeping the profit.
3. Bridging Short-Term Finance Gaps
HELOCs can act as a short-term funding solution while waiting for refinancing or sale proceeds.
Example:
An investor purchases a property at auction for £200,000 but needs quick access to funds to complete. He uses a HELOC as an alternative to a bridging loan, avoiding high interest rates.
HELOC vs. Other Property Finance Options
HELOCs are more flexible than traditional loans and offer lower rates than bridging finance, making them a good option for investors who already own property with equity.
Risks & Considerations of HELOCs for Investors
Property at Risk: A HELOC is secured against your home. If you fail to repay, you could lose your property.
Variable Interest Rates: Most HELOCs have variable rates, meaning repayments can increase if interest rates rise.
Lender Restrictions: Some HELOC providers may limit how funds can be used for Buy-to-Let or development.
Solution: Always check the terms before using a HELOC for property investment. Some lenders may offer fixed-rate HELOCs to mitigate rate fluctuations.
UK Lenders Offering HELOCs
While HELOCs are relatively new in the UK, several lenders have entered the market:
- Selina Finance: Offers flexible HELOC products for UK homeowners.
- Shawbrook Bank: Provides secured credit lines for Buy-to-Let landlords.
- United Trust Bank: Specialises in secured lending for property investors.
Use our Stamp Duty Calculator to see how much SDLT you might pay on your next investment.
Case Study: Using a HELOC to Grow a Property Portfolio
Investor: James, a UK-based property investor.
Property Value: £500,000 (residential home).
Mortgage Balance: £250,000.
HELOC Secured: £100,000.
Investment: Used £75,000 as a deposit for a £300,000 Buy-to-Let property.
Results:
- Rental income covered mortgage & HELOC repayments.
- Property appreciated by 10% in 2 years, increasing James’ net worth.
- Refinanced onto a standard mortgage, repaid HELOC, and reinvested.
Final Thoughts
Best for: Investors who have home equity and want flexible, fast-access capital.
Not ideal for: Investors uncomfortable with variable interest rates or securing debt against their home.
A HELOC can be a powerful tool to expand your property portfolio, fund refurbishments, or act as short-term finance. However, it’s crucial to compare it against other lending options to ensure it fits your strategy.
FAQs
Ans: Yes, many investors use HELOCs for deposits or full property purchases. However, check lender restrictions.
Ans: Most HELOCs have variable interest rates, meaning repayments can change. Some lenders offer fixed-rate HELOCs.
Ans: Yes! HELOCs are often cheaper than bridging finance and can be a useful alternative if you have enough equity.
Ans: If house prices drop, your equity may decrease, limiting the amount you can borrow or risking negative equity.
Ans: No. HELOCs work like a credit facility, allowing flexible repayment over time.
