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Mortgage Equity Withdrawal

Do you know what mortgage equity withdrawal is? Find a full explanation below, as well as a list of ways that UK homeowners can utilise their home’s equity

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 14, 2022

You may have seen or heard the term ‘mortgage equity withdrawal’ and are wondering what it means and whether it’s something that might be available to you.

In this article, we’ll explore all the ways UK homeowners can potentially use the equity in their homes to secure finance, whether you need a little extra for home improvements, debt consolidation, gifting a deposit, or simply improving your lifestyle.

What is mortgage equity withdrawal?

Mortgage equity withdrawal (or MEW) is a collective term used in the US property market to describe their equity release products. The purpose of MEW is to allow homeowners to utilise the equity held within their property as collateral for a loan. This loan could be in the form of a home equity loan, second mortgage, or a similar HELOC (home equity line of credit).

Equity is simply the percentage of your property that you actually own, so if you’re repaying a mortgage, it’s the amount that you have already repaid, on top of the deposit you provided at the outset.

For example: If you bought a £100,000 home with a 20% deposit and have repaid £10,000 of your loan, then your current equity is 30%. Equity increases as you repay the mortgage, and also as house prices rise. You can look at Rightmove, or the Land Registry to see what similar properties in your area have recently been sold for, to get an idea of the current value of your home.

Is there a UK Equivalent?

Not directly, and we don’t tend to use the term ‘mortgage equity withdrawal’, however, there are a number of ways to maximise and use the equity in your property as a UK homeowner. The most suitable will depend very much on your personal circumstances, how much you need to borrow, and what you need it for.

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Choosing the right equity release option for you

There are multiple ways to utilise the equity held in your home, however, the equity release products that we refer to in the UK are intended for over 55s. Whatever your age, however, there may be more suitable options available to you than equity release. For example, if you’re looking to help your child onto the property ladder, a joint borrower sole proprietor (JBSP) mortgage is another option to consider.

Always think about the size and duration of any additional debt, how this will affect your future financial plans, and seek relevant advice, before committing to borrow against your home.

Remortgaging to release equity from your home

If you’ve built up substantial equity in your home, it may be possible to remortgage to borrow additional funds against that equity.

It’s important to understand that this could increase the overall loan to value (LTV) of your mortgage, and therefore the interest on your monthly repayments. However, this option may still be cheaper than the interest rates available on secured loans or similar options available to you, so it’s important to run through the figures with your mortgage broker.

What you should know:

  • Negative Equity – If house prices fall dramatically, your equity can quickly follow, which has the potential to leave you in negative equity (you owe more than the current value of your home).
  • Early repayment charges – Before remortgaging, always consider any early repayment charges and exit fees on your current mortgage.

Increasing borrowing with your current lender

If you’re only looking to borrow a modest amount, it may be possible to speak to your existing mortgage lender about the potential to increase the size of your original mortgage. Some lenders will consider this sort of request, especially if there’s a potential to add value to your home, for example, borrowing to renovate a kitchen or bathroom.

Secured loan

Homeowners are often eligible for secured loans, which can be quicker to arrange than the other options. They are essentially secondary mortgages secured against the enquiry in your property. The debt sits behind your primary mortgage and the lender would be second in line for repayment if your property was repossessed due to mortgage defaults.

Although interest rates are typically higher than those on first-charge mortgages, the terms are often relatively short, meaning you could still pay less back overall.

Bridging loans

Bridging loans are commonly used for commercial purposes, however, they can be used as an alternative to equity withdrawal in certain circumstances, for example, if remortgaging or equity release is not an option for you. Although very quick to arrange, bridging loans are typically short-term finance with substantial interest rates and high associated costs.

What you should know:

Exit Strategy – If you’re not planning to use the sale of your home to repay the bridging loan, you’ll need another robust exit strategy (way to repay the loan) in place. Each bridging lender will have its own acceptable exit strategy criteria to meet.

Remortgaging onto a retirement interest-only (RIO) mortgage

RIO mortgages are interest-only mortgage products specifically for retirees. They allow you the opportunity to release some of the equity you’ve built up in your home to raise funds, and/or reduce your existing monthly payments. This type of mortgage has no term length and only becomes repayable when all those named on the mortgage have either passed away or moved into long-term care.

UK Equity release products

There are two types of equity release product in the UK, lifetime mortgages, and home reversion plans. These are only available to homeowners over the age of 55 and 60 respectively, and allow you to borrow against the value of your home.

Both applicants who own their home outright, and those with a balance on their existing mortgage may qualify. Although the UK equity release market is now heavily controlled by the Equity Release Council, it’s still strongly recommended that you seek advice from an experienced equity release broker before you consider this type of financial commitment.

If you’d like to find out how much equity you may be able to release from your property take a look at our easy to use calculator here:

calculator icon

Equity Release Calculator

You can use our equity release calculator to work out how much capital you can release from your home. Simply enter your age and the property’s value and the tool will do the rest.


Estimate if you're unsure
£
For joint applications the amount you can release is based on the age of the youngest applicant
years old

Maximum Equity you could release:

The amount is of your homes value, the maximum most borrowers your age can release.

Get Started with an Equity Release Specialist and find out exactly how much you could release.

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Lifetime mortgages

The most common of the two equity release products, by far, is a lifetime mortgage. It’s offered purely based on the value of your home, so they are less concerned with the income or credit status of the borrower than traditional mortgage lenders.

Typically, you can release equity up to 60% of the current value of your home, however, older applicants may be able to borrow more. The loan is repaid from the sale of your home, once you have passed on, or moved into care, and you can choose whether to repay the interest each month, or roll this up and add it to the total outstanding loan.

What you should know:

Planning to leave an inheritance? – If so, it’s important to understand that the value of your estate can be affected by a lifetime mortgage. Speak to a broker if you need to ring fence equity to leave behind as inheritance.

Negative equity – A property market crash could dramatically reduce the value of your home leaving a shortfall. The ‘no negative equity guarantee’ means that your family will not be liable to repay any debt, however, in this scenario the entire proceeds of sale would be absorbed by the lender.

Home reversion plans

Although less common, this form of equity release is still available from some lenders. Essentially this transaction involves selling a percentage of your home to the lender for lower than its current market value, in exchange for a lump sum of cash, regular income or combination of both.

No matter what percentage of your property you offer the provider, you have the right to live in the property until you die. Although there is nothing to repay throughout the term, once you’ve passed on, the lender will take the agreed percentage from the proceeds of your home sale, which can reduce the amount left for inheritance purposes.

Most equity release experts do not recommend home reversions plans and prefer to help customers secure lifetime mortgages or other alternatives instead.

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How a broker can help you with equity withdrawal

A mortgage broker who specialises in equity withdrawal will be best placed to ensure that you have explored all of the potential options available to you. They can assess your circumstances and needs to ensure you’re fully aware of any future impact new borrowing could have on your homeownership status and future financial plans.

Once they’ve helped you to choose the right option for you from the list below, they’ll be able to recommend the most suitable lender for your circumstances from a vast market of lenders, helping you to achieve competitive rates and saving you the time and expense of searching for the ideal product.

Get matched with an equity withdrawal specialist

Securing any form of borrowing against your home involves an element of risk, and as such, you are strongly discouraged from venturing into any equity-based financial agreements without first seeking advice from a specialist broker with expert knowledge in your chosen market.

Our free, broker-matching service will pair you with an expert in equity release, remortgages, bridging loans or retirement mortgages, depending on which type of advisor would be most helpful in your circumstances. As well as fully explaining the benefits of products within their specialist area, these brokers will ensure that you have fully considered all the other options available to you, and chosen the most suitable.

All of the brokers in our network offer their initial meetings free of charge, so there’s no risk involved in chatting over your options. Simply call 0808 189 2301 or make an enquiry online and we’ll find the most knowledgeable expert for you.

FAQs

How much equity can you withdraw from a property?

This depends on what method of equity withdrawal you’re using, as well as your personal circumstances. If you are using a UK equity release product, such as a lifetime mortgage, the maximum is usually 60% of the property’s value, but if you are remortgaging, deals with a loan-to-value ratio of up to 95% are available under the right circumstances.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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