By What does releasing equity in your property mean?
It’s common knowledge that over time, the more you pay off your mortgage, the more equity builds up within your home.
Equity release means taking out money that has built up within your home, through your mortgage payments.
There are several ways this can be released.
One way would be to approach your current mortgage provider and apply for a further advance.
Alternatively, you could speak with a new lender, who may offer a better mortgage rate and apply for a bigger mortgage with them.
You would then redeem your current mortgage and be left with a surplus. What’s important is that you find the right way that works for you, at the right time – otherwise it can prove to be an expensive option.
Circumstances in which you could consider releasing equity
There are many different reasons why you would consider releasing equity from your property.
The most common one is to finance home improvements, which should in return increase the value of your property.
Another common purpose would be to raise sufficient funds to assist with the purchase of an investment property, known as a ‘Buy to Let’.
Buy-to-let mortgages usually require you to place a 25% deposit down, which could take a long time to save.
However, releasing equity from your property could help you achieve this in a quicker manner.
We also note that many clients decide to raise equity to gift deposit to a family member get onto the property ladder.
How to know if it’s right for you
There are several elements you should consider before committing to raising funds against your property.
Firstly, you will need to understand the current value of your home.
From here, you could find out how much equity you have in your home – depending on the remaining balance of your mortgage.
Secondly, if you are considering releasing equity through re-mortgaging, it is beneficial to speak to a mortgage advisor – such as a member of the Loans Arena team – to discuss how taking out a larger loan will affect monthly payments and future interest rates.
Furthermore, consider how you are going to utilise the funds and whether it is worth the additional costs in monthly instalments and their interest rates.
How you can use your equity
A rising trend we are witnessing in the market is heavy investment in buy-to-let.
More people are looking to release equity to raise finance for a deposit to invest in a buy-to-let property or a commercial building, as means to start a new business venture.
Investing in property is most common, as it could provide a monthly income and also long-term capital growth. In recent months, house prices have continued to rise and the demand for housing remains high.
In fact, releasing equity could allow you to start and grow a property portfolio.
According to the Office for National Statistics, rental prices increased 2% between January 2021 to 2022, with east Midlands witnessing a 3.65% rise: the highest private rental price annual growth within the English regions.
This indicates that demand for rented accommodation is still high.
Another area to witness a continuation in growth is London. The city seems to be making a comeback, according to Rightmove’s latest House Price Index, which shows a continuous increase in London’s buyer demand.
But buy-to-let isn’t the only investment choice available.
Costs to consider
Whilst all of this sounds like an instant ‘cash cow’, there are costs to consider:
- Your monthly payments will increase should you apply for a bigger mortgage amount
- Whilst some lenders offer fee free products, you should factor in the cost of a lender product fee and/or a valuation fee
- You may need a solicitor, depending on whether you are using a new lender or remaining with your current provider. Whereas most lenders offer a standard free legal package, not all do.
You should consider speaking to a mortgage advisor to find out how releasing equity could affect your current or future mortgages and the type of equity release that would work for you.
Our team are always on hand, ready to help you find your perfect mortgage solution by finding a lender whose criteria matches your personal financial situation. Contact us today by calling 0207 060 3456 or visiting www.loansarena.com.
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