Equity release is available through a range of products which enable people to take money out of their property. This can either be done through accessing the money as a lump sum, or through several smaller amounts. Equity release has proved popular amid the lockdown crisis as many seek to access extra cash.
Huge swathes of the country are facing financial difficulties, and thus, getting hands on additional money could prove particularly helpful.
Equity release can be achieved through two main measures – later life lending, and releasing equity through a remortgage process.
However, it is important for homeowners to consider the implications of equity release before jumping into an arrangement.
Express.co.uk spoke to Richard Hayes, CEO of Mojo Mortgages to understand the current equity release market.
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Mr Hayes provided further insight into the process of equity release and outlined the important steps for success.
He said: “Lenders really care what people are doing with the cash. For instance, debt consolidation as an example, is something that lenders don’t always allow, or if they do, there will be caps on the levels in which people can borrow.
“But if it is because you are looking to buy another property, or make home improvements, you can remortgage or release equity from property quite easily.”
Mr Hayes said it was vital for people to consider whether it made sense to release equity from their property at this time.
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Releasing equity to have more in the bank may raise a challenge from the lender as to why a person is looking to release money.
However, homeowners should also take certain steps to ensure they are in a good position for equity release.
Borrowing more money can often mean people will need to get their finances in order before actioning equity release.
Mr Hayes added: “This will potentially require a new affordability assessment, so it is important to recognise that if you only bought a property two years ago, for example, and you are already at the affordability cap, it is now highly unlikely a lender will perceive you to be affordable in terms of borrowing more.
“Understanding what is affordable for you is therefore key – as a rough rule of thumb, it is usually 3.5 to four times your income or household income if there are two applicants.
“You should also understand whether you are eligible and take additional steps.
“If you are releasing equity for something such as home improvement, the key things to make sure you have are planning permission if you need it, and maybe some costings.
“The lender will want to know what you are spending the money on, and how you are spending it.
“They may even ask for quotes and plans to show they have done their due diligence. You should therefore make sure you have all your ducks in a row before you speak to a broker.”
While the benefits of equity release can often be significant, people are urged to think carefully before doing so.
ClearScore has said equity release through remortgaging can provide Britons with lower interest rates, and access to money otherwise locked away.
However, if you are unsure about which option to take, it is important to speak with a mortgage broker.
They can provide further advice specific to a person’s circumstances and assist them in moving forward.