Equity release for home improvements

EquityThe difference between the value of the property and the amo... release is the process of unlocking the value of your property and turning it into cash for future use.

Here in this article, we will help you to understand the process of equity release for home improvements. We will try to answer the questions such as what is an equity release? and how you can release equity from your home to use in home improvements. How much money do I get when I sell my house? What are the benefits of using equity release for home improvements?.

We hope that after reading this article, you would be able to find out more about equity release for home improvements and make a decision accordingly.

It is estimated that UK homeowners will have spent more than £40 billion on home improvements during 2022

For older homeowners, there are likely to be many reasons for making those home improvements – whether on new bathrooms or kitchens, a lift to make your home more accessible, or installing energy-saving apparatus such as solar panelsThe presence of solar panels on a property that may affect t... or the latest central heating boilers. All can significantly increase the value of the home you own. You can read about equity release for over 90s in our blog.

That only leaves the question of how you might pay for the improvements.

What is home equity and equity release?

The equity in your home is that proportion of the property you own that is free of debt.

While there is an outstanding mortgage, of course, you do not entirely own your home until the debt is repaid. Only once it has been repaid can you be said to own your home outright. If you have completely repaid your mortgage or any other borrowing on your home, for example, you own 100% of the equity.

Until then, the amount of equity in your home is directly proportional to any outstanding mortgage. If your home is worth £300,000, let’s say, but you have a remaining mortgage balance of £60,000, your equity is valued at £240,000 – the difference between its market value and the outstanding mortgage. It also follows that if property prices in your area climb, so does the value of your equity in the home you own.

However, that equity remains locked away in the property’s value unless you do something about it. Equity release does just that. You can use the equity you have in your home as collateral for a loan to have the cash in return for the released equity.

Various financial products recognise your equity as collateral against such a loan – and the amount you borrow is then subject only to the lender’s loan to valueThe ratio of the mortgage amount to the value of the propert... ratio (LTV) and the health of otherwise of your credit history.

Can I release equity from my home for home improvements?

If you have used the equity – or a proportion of it – as security for a loan, you then have the cash in hand that can be used for whatever purpose you choose.

Equity release is a popular and potentially attractive way to fund home improvements. Not only does an equity release mortgage in the UK provide you with the funds with which to pay for your home improvements, but the building works themselves may substantially increase the market value of your property.

But it is up to you how you decide to apply the funds raised through any equity release agreement. They can as easily be used to purchase a second or holiday home in the UK or abroad, for example, to buy your dream car, the holiday of a lifetime, or to pay medical bills or consolidate existing debts.

How do you release equity to renovate?

As we have explained, equity release involves borrowing against the security of the equity you own in your home. As with any kind of borrowing, the amount you can raise will depend on the strength of your current credit rating and the amount you want to borrow (in this case, the amount of equity you are looking to release).

As with any borrowing where your home is offered as security, your finances and personal circumstances are scrutinised. If you default on any agreed repayments, the lender has the right to seize or repossess your home – the debt can be foreclosed.

How can I release equity for home improvements?

From the discussion so far, it may be clear that there are several ways in which the equity in your home can be offered as security for borrowing the fund you need to carry out home improvements. These include:

Remortgaging

• this is a common practice of arranging a new mortgage with which you repay any existing mortgage and use the balance to fund your planned home improvement project;
• the remortgageRefinancing an existing mortgage with a new mortgage. may also take advantage of improved terms and conditions – such as a lower rate of interest to reduce your monthly mortgage repayments – although you might also want to factor in the cost of any penalties attached to the early repayment of your present mortgage;

Getting a secured loan

• secured home improvement loans can use the equity you own in your home as collateral;
• these can be arranged even with your existing mortgage still in place so that the balance of debt-free equity is effectively used as collateral for a second-charge mortgage;

Getting an equity release lifetime mortgage

• a recent boom in the popularity of equity release – especially among older homeowners who are more likely by now to enjoy 100% equity ownership – has seen its use more than double in the last seven years, according to a story in the Daily Mail newspaper on the 8^th of September 2022;
• the product most widely used in these cases is the equity release lifetime mortgage;
• it is a popular product because the loan – a so-called lifetime mortgage – is secured against your equity in the property so that you can continue to live in your home, yet you do not have to repay the principal until the mortgage reaches full term when you die, or you move into long-term care;
• the interest on a lifetime mortgage is typically fixed-rate and can be repaid in monthly instalments or, if you so choose, continuously rolled over until repayment at the end of the mortgage term;
• most equity release lifetime mortgage providers guarantee that, even if the value of your home plummets, you will not suffer negative equityA situation where the value of the property is less than the... when you would otherwise be repaying more than the property’s market value.

What else should I consider for equity release for home improvements?

While equity release can be a highly effective way to fund your home improvement project, the decision must be cautiously approached. Equity release may result in a thorough redefinition of your finances – including any inheritance you intend to pass on to your children and may even affect the calculation of any government benefits to which you are entitled.

Next steps

Considering the potentially significant impact of any decision to release the equity to make home improvements, we invite you to draw on our expertise and experience by consulting us here at NeedingAdvice.co.uk.