There are numerous ways in which you can release equity from your property to fund home improvements such as a kitchen extension. The options available will, to a certain extent, depend upon age and the level of equity in your property. Some options may also include an affordability test where regular repayments are required.
Releasing equity from your property is a very popular means of funding home improvements such as in this example, a kitchen extension.
There are numerous factors to consider before deciding the best route for your situation.
What Equity Release Options Do I Have?
Younger homeowners may have the option to remortgage their property, with an element of equity release, or look at a separate equity mortgage.
Older homeowners over 50 tend to be restricted to lifetime mortgages and home reversion schemes.
How Do I Remortgage to Release Equity?
If you have repaid a significant portion of your mortgage and/or your property has increased in value, then we can safely assume you have a degree of equity in your property.
It is then simply a case of remortgaging your outstanding mortgage with extra funding, where available, to release a degree of equity to fund your kitchen extension.
What Is an Equity Mortgage?
Equity mortgages are common in situations where an existing mortgage is agreed on terms which cannot be replicated, or there may be punitive early repayment fees. An equity mortgage is a separate mortgage/secured loan which is secured on the equity element of your property.
It will involve a second charge which is positioned behind the primary charge held by the original mortgage lender.
You will need to undertake an affordability test which will consider the cumulative cost of the traditional mortgage and additional equity mortgage against your income and expenses.
What Is a Lifetime Mortgage?
As the name suggests, a lifetime mortgage has similar traits to a traditional mortgage, but there are no regular repayments.
Interest is rolled up on a monthly basis and repaid when the property is sold, upon death or a move into full-time care, together with the initial mortgage capital.
As there are no regular repayments required with a lifetime mortgage, there is no need for an affordability test.
What Is a Home Reversion Scheme?
The best way to describe a home reversion scheme is the sale of a percentage of your property to a third party investor. The main downside is that they will value the share of your property at a significant discount to the market rate.
However, there are numerous Equity Release pros and cons to consider, and advice should be taken before pursuing this option.
How Much Can I Borrow for a Kitchen Extension?
In theory, there is no limit to the level of funding available via an equity release to pay for a kitchen extension.
It will come down to the level of equity in your property and, with remortgages and equity mortgages, your income and the mortgage affordability calculation.
Check out our equity release calculator, which will help you clarify the level of equity you can release from your property.
When Is the Right Time to Release Equity in My Property?
Many people try to “perfect” their timing when looking to release equity by trying to take advantage of expected market trends. The simple fact is that the only value with any certainty is that before you today.
You also need to take into account current mortgage interest rates and base rates because forecast future changes are not always reliable. Who knows what is just around the corner?
What if I Require Additional Finance to Complete My Kitchen Extension?
In theory, as long as it is affordable, and there is equity in your property, you could have access to additional funding to complete your kitchen extension.
However, many lenders will question your original budget and why it would appear that the cost has increased above and beyond the initial estimate.
Therefore, in many ways, it is better to err on the side of caution and slightly overshoot your original funding application than leaving yourself short.
Could I Remortgage on a Higher Value?
Normally you would expect the theoretical increase in the value of your property to far exceed the cost of the improvement works. If for example, you spent £30,000 on a kitchen extension and saw a £60,000 increase in the value of your property, then there may be an opportunity to remortgage at some point in the future.
There is no hard and fast rule regarding any improvement in the value of your property after building works.
However, if a significant investment does not increase the value of your property, then maybe you need to question the rationale behind the improvements?
Can I Arrange Staged Payments?
While remortgages and equity mortgages have been around for many years, lifetime mortgages and home reversion schemes for the over 50s have in the recent past attracted a degree of controversy.
Thankfully, regulations covering the whole equity release market have been tightened with greater transparency and consumer protection. If you have any queries about lifetime mortgages and home reversion schemes, you can refer to the Equity Release Council website offers helpful advice on the list of members.
What Interest Rates Should I Expect to Pay?
The interest rate you should expect to pay on a remortgage or an equity mortgage will reflect the market at the time, the combined LTV ratio and your specific financial situation.
Just because you have equity in your property does not mean you will pass the affordability test, especially if your financial situation has deteriorated.
There are numerous options for younger and older homeowners in the UK with various issues to take into consideration.
As a consequence, many people looking to release equity refer to take advice from mortgage brokers who can suggest the best course of action for their situation and check the wider market for the best terms and conditions.
How Can Equity Tree Help?
Here at Equity Tree, we have partnered with some of the UK’s leading Equity Release broker companies.
They have already helped thousands of people release equity already, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these equity release companies, click on the below and answer the questions.