Releasing Equity from Property

How to Release Equity from a Property?

If you own high-value UK real estate as your primary residence, releasing capital from the property, which you can then invest elsewhere for a higher rate of return, can make a lot of sense.

Equity release is a way of taking out the funds without income affordability restrictions. As a result, there has always been a demand for equity release schemes involving high-value properties. These tend to be owned by high-net-worth individuals.

Equity release schemes have become even more popular due to market uncertainties and challenges that have reduced overall investment returns.

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Equity Release FAQs

How Does Equity Release Work?

Any equity you release from your property will need to be paid back in the form of a mortgage or short-term loan. As a result, you will still need to adhere to various lending criteria.

Historically, retail banks tend to have a more rigid approach to equity release transactions, while private banks and niche lenders are more flexible. That is not to suggest that retail banks are not competitive. For straightforward transactions, many high street banks are ideal. However, for more complicated situations and borrowers, the use of private banks is often more advantageous.

Enness acts for many high-net-worth individuals who can have assets spread across the world and various forms of income, often in foreign currencies. Very often, high street retail banks won't include these assets in affordability calculations. This can significantly impact how much sense it will make for you to borrow from these lenders and the finance packages that will be available to you.

Private banks and niche lenders tend to be very different in their approach and flexibility. They are more appreciative of overseas assets, multiple income streams, and they will also consider future events that would positively influence how much you would pay. For example, they can consider future investment returns, salary increases, upcoming bonuses, liquidity events, etc. While high street banks tend to have rigid formulas and algorithms deciding the outcome of an equity release application, private banks and niche lenders are more able to offer a personal approach and custom-made finance packages.

Why Take out an Equity Release Product?

An equity release product will release a lump sum of capital, tax free, which can be used for any legal purpose. Still, the most common reasons why people who meet the criteria take out an equity release product are:

Home improvements
New home
To pay off an existing mortgage and debts
Increase disposable income
To help family members financially
Holidays
Cars

Raising Capital for Redevelopment

After the UK changed its stamp duty regulations, many individuals saw a significant increase in property purchase costs. In addition to the relatively low-interest rates, it can make more sense to redevelop an existing property or family house rather than try and buy a new home. Given the significant competition for property and the time it can take to secure a mortgage, releasing equity to invest in redeveloping a property or home can make good sense.

For example, if you were to spend £100,000 on a renovation that resulted in a £200,000 uplift in the value of your property, this makes perfect investment sense. Rather than moving home, you can benefit from an instant return on capital invested. You will also have opportunities to remortgage in the future based on the new, higher value of the property.

How can Enness Help With Raising Capital?

Enness has operated in the equity release market for several years, and the team understand current market trends and what these mean for you. In the current low-interest-rate environment, there is enormous liquidity in the lending market. Therefore, there is potential to enhance returns significantly.

As long as your figures add up and you have further collateral to give lenders comfort, equity release is often a very straightforward decision for lenders. If you own worldwide assets and you have various income streams, you will usually find that private banks are better able to cater to you and understand what you bring to the table. As such, they will most likely be Enness’ first port of call if you wish to release equity from a property you own.

Enness has close relationships with specialists in this area, and your broker will know how you need to present your case and what lenders will want to see to be able to make a lending decision. Enness’s recommendation and introduction will often go a long way towards securing funds, and the application process will be streamlined and quick.

It can be tempting to sit on your hands and take a passive approach to investments in low-interest-rate environments. In reality, however, you will find that there is lots of finance available at very attractive prices. Releasing equity even for a renovation or extension of your property may be worth considering, given the potential for an immediate uplift in capital value.

What are the Types of Equity Release

Lifetime mortgage
Home reversion plans

A lifetime mortgage allows homeowners to borrow money against the value of their home while retaining ownership. The borrowed amount and interest are typically repaid when the homeowner sells the property, moves into long-term care, or passes away. Interest can be paid periodically or added to the loan, leading to compound interest.

A home reversion plan involves selling a portion or the entire home to a provider while retaining the right to live in it rent-free. The homeowner receives a lump sum or regular income. When the property is sold, the provider gets their share of the proceeds based on their percentage.
Each option has its own implications for inheritance tax, future property value and your estate.

Enness only advise on lifetime mortgage equity release, and not home reversion plans.

Contact Enness

Maximising your asset when interest rates are low is perhaps easier said than done. However, Enness’ brokers have experience across the board and contacts in the high street and private banking sectors. Enness can structure funding requirements specifically around your situation. Get in touch for a no-obligation chat about your situation and your plans, and the team will present you with the options available.

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