Releasing equity in your property for that once-in-a-lifetime holiday to Hawaii is now within touching distance for many homeowners. There are numerous ways and means of releasing equity in your property, some of which are more appropriate for different scenarios.
There is a changing demographic in the UK, life expectancy is increasing, employment years have been extended, but many people are struggling to meet the ever-increasing cost of living.
Therefore, there is a growing demand for equity release options to fund once-in-a-lifetime holidays, such as a trip to Hawaii.
Continue reading to get all the details about how you can release equity for that once is a lifetime holiday to Hawaii.
What Is the Minimum Equity Release in a Property?
This will depend upon the type of equity release agreement you negotiate, but anything less than £10,000 on a stand-alone agreement may not be cost-effective. When it comes to a remortgage, you may be able to realise a relatively low level of equity if your original mortgage is refinanced.
You will need to take into account costs incurred with a new mortgage as your circumstances may have changed, and not all options may be open to you.
What Are the Equity Release Options Available?
There are four basic equity release options, two of which, lifetime mortgages and home reversion schemes, are focused on older households with a minimum age of 55.
Then we have the traditional remortgage which can include a degree of equity release if you meet the criteria. Finally, there is the equity mortgage which is literally a secondary mortgage/loan secured on the equity element of your home.
Should I Take Advice on Equity Release?
There are a number of options available to release equity from your property, some of which are appropriate to younger homeowners while others are focused on older homeowners.
The four options listed above all have very different factors to consider and may not be appropriate for everybody. As this area of the market continues to grow, more people are now taking advice from mortgage brokers with particular expertise in the area of equity release.
Independent Brokers and Tied Brokers
There are two specific types of mortgage broker the independent broker and tied broker. An independent broker can talk to all participants in the lending market while a tied broker is focused on a reduced number of lenders.
In theory, you might assume that the independent broker will always be more competitive, but this is not necessarily the case. If a tied broker has a particularly strong relationship with a lender, then they may be able to negotiate extremely competitive terms on a par with and sometimes better than an independent broker.
What Is a Home Reversion Scheme?
A home reversion scheme is a type of equity release which has become very popular amongst older homeowners. In simple terms, you sell a share of your property to a home reversion company, and when you either pass away or move out for long-term care, the property is sold.
The home reversion company would receive a percentage of the proceeds relating to their share of the property.
How Much Will a Home Reversion Company Pay for a Share of My Property?
The main concern regarding this type of plan is the fact that the home reversion company will acquire a share of your property at a submarket rate. This rate could range from 20% to 50% of the market value. For example, if you sold half of the property worth £200,000, you would only receive between £20,000 and £50,000.
This, despite the fact a 50% share in your property would be worth £100,000 at market value. One element of these plans, which is often overlooked is the fact that the homeowner will live rent-free in their home for the rest of their life – or until they move into full-time care.
We also need to remember that the home reversion company’s funds could be tied up in the property for anything up to 30 years and even beyond.
What Is a Lifetime Mortgage?
Like a home reversion scheme, there is no need to carry out an affordability test if you’re looking to release equity via a lifetime mortgage. The LTV for a lifetime mortgage can be anything up to 60% with a higher LTV the older the homeowner.
So for example, if you have a property worth £100,000 and decided to take out a maximum lifetime mortgage, let’s say you received £60,000 on a 60% LTV. You pay no interest, as this will be rolled up and repaid at the end of the mortgage term, together with the initial capital.
This is one of the more popular types of equity release for older homeowners, and the headline rate on lifetime mortgages is falling. The latest figures suggest the average headline interest rate has now fallen to 4.91%, which is still a premium on traditional mortgages, but this premium is reducing.
How Does Traditional Remortgage Work?
A traditional remortgage is still a useful way to release equity, although, with the mortgage industry neglecting those over 50 to a certain extent, it tends to be more associated with younger homeowners.
This is simply a case of remortgaging your property, paying off the existing mortgage, and retaining the surplus capital which is in effect your equity.
The LTV associated with the remortgage will depend upon your financial status, and you will need to pass an affordability test before approval. In a perfect world, a remortgage would probably be the first choice of many, but unfortunately, it is not available to all age groups.
What Is an Equity Mortgage?
An equity mortgage is simply a type of secured loan with the funds secured against your equity content in a property. If there was an existing mortgage, this would need to be taken into account with a combined LTV maximum of no more than 80%.
You may wonder why homeowners choose an equity mortgage rather than a simple remortgage. This could be for a number of reasons including high early repayment penalties with the original mortgage or the fact that the original mortgage interest rate could not be replicated in the current market.
There are certainly ways and means of releasing equity with a particular focus on those over 55 and struggling to obtain traditional mortgage finance. The home reversion plan and lifetime mortgage are two very useful tools to release equity.
The fact that no payments are required also avoids the potential problem of the mortgage affordability test.
An equity mortgage and a traditional remortgage are more focused on those aged under 50, with regular income, and are to all intents and purposes a variation of the traditional mortgage.
So, if you are looking for ways to book that once in a lifetime holiday to Hawaii, equity release should certainly be an option for you.
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.