Is it hard to release equity in your home?

Roof tops of houses in a town all with chimney stacks

If you have a home, even if you haven’t paid it off fully, and you are looking for some cash to do those things in life that need a big lump sum of money to pay for them, then you can access the money that is tied up in your home through a process known as Equity Release.

What is equity release?

Equity release products give homeowners a lump sum of money in exchange for a share of the equity which exists in their home.

The loan is not subject to regular repayments like normal mortgages are, but instead, the loan is expected to be repaid along with the interest that has built up over the intervening period, at the point at which the house is sold; whether this is when the homeowner moves into a care home, when they move in with family, or when they die.

Equity release products are generally only available for those who are over 55. 

How easy or difficult you find it to release the equity in your home will depend on a number of factors which lenders use to assess whether you qualify for the products. These factors will include your age, your income, how much money you want to release, your plans for the future and the value and condition of your home.

How do you release the equity?

So, you have equity in your home, and you wish to release some of it.

You could of course sell your home and release equity that way, but not everyone wants to move home, leave behind the neighbours and community that they are part of, or their family who are close by,  and many people don’t want to go through the stress of having to relocate and make a brand start somewhere else.

For those who don’t want to move, releasing equity can be done through a process of remortgaging

There are two main types of Equity Release product:

Lifetime mortgage

This is the most commonly chosen type of equity release product. A loan is given and usually, no repayments are made until the home is sold, or the homeowner dies.

Although some lifetime mortgages give borrowers a chance to repay the interest or some of the interest whilst they remain in the home.

The amount that can be borrowed depends on the homeowner’s age, the value of the property and the health of the homeowner. 

Home reversion plan

With a home reversion plan, the homeowner sells all or parts of the equity in their home to the lender at a reduced rate on its true market value.

In exchange, the homeowner gets a lump sum or several instalments of money that are tax-free, and in exchange they are allowed to stay in their home, living like a tenant but not paying any rent as the loan amount is recouped upon the sale of the property when the borrower moves out or dies. 

These schemes have many advantages if you wish to take money that you have earned through your home and spend it on projects that are important to you, but you wish to remain living in your home.

However, there are also many risks to these products and the interest costs can mount up very quickly meaning that you may be left with no equity at all when you eventually come to sell. It’s important to speak to an independent financial adviser before making any decisions about what is right for you.

Will the lenders give you the amount you want?

If you are aged over 55 and you own your own property with only a small mortgage, or no mortgage on it, then you could be eligible for an equity release product.

However, there are certain qualifying criteria that lenders apply to any application for a lifetime mortgage or home reversion plan.

These criteria are generally split into five categories. The categories are;

1. The location of your home

Your home must be within the UK, but not on the Isle of Man and some lenders do not accept applications from Northern Ireland. 

2. Minimum property value 

Your home must be at worth at least £70,000 as a minimum, whilst the maximum varies according to the lender. Some lenders do not apply any upper limit, whilst others do not accept properties worth over £1 million.

The condition of your property is very important and something all lenders will take into consideration. They will want to see that your property is in good condition and well maintained.

The property must not have a lot of work that needs doing and it cannot be excessively cluttered as your lender will then have doubts about your ability to keep the home in a good enough condition to ensure it retains its value. 

3. Your age

The age of the youngest homeowner is usually the age that is used to determine your eligibility.

Currently, the youngest age at which any person can take out a lifetime mortgage is 55, and the minimum age for a home reversion plan is usually 60, although these numbers can vary from provider to provider.

4. Loan amount

The minimum initial loan amount for a Lifetime Mortgage is usually £10,000. Some lenders set this at £15,000 however, and others set it even higher.

The maximum you can borrow is based on your age, your health and lifestyle, your property’s value, and how much of your outstanding mortgage (if you have one) needs to be repaid. The older you are, the higher the amount of equity you can release. 

5. Your credit history

Although your credit history is less important for an equity release product than it would be for a standard mortgage as there are no repayments to worry about, if you have a particularly poor credit rating, this may still put lenders off.

Some lenders on the other hand will not undertake any form of credit check.

Summary

How easy or difficult you find it to release the equity in your home will depend on a number of factors which lenders use to assess whether you qualify for the products. These factors will include your age, your income, how much money you want to release, your plans for the future and the value and condition of your home.

If you meet all of these criteria then you should find that it is not hard to find a lender willing to accept you for an equity release scheme. 

See How Much Tax-Free Cash
You Could Release from Your Home

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