How to Release Equity for Home Improvements

31-May-2024 9:53
in Mortgage
by Sam Hodgson
Release Equity for Home Improvements

If you already have a portion of your mortgage paid off, you may be able to release equity for home improvements and finance your next property refurbishments.

If you're a homeowner, it's likely that you'll need to make changes to your property at some point. These improvements can be as simple as fixing wear and tear, installing a new boiler, or more complex additions, like a loft conversion. Refurbishing your property can be expensive, and finding the necessary funds can be challenging.  

Equity release is a popular option among homeowners looking to make changes to their property. This blog post explores how equity release can fund home improvements. We’ll explain the different types of equity release when they can be useful, the advantages of this type of finance, and what to consider before applying. 

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How to release equity for home improvements

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How Does Equity Release For Home Improvements Work?

Types of Equity Release for Home Improvements

Who Can Use Equity Release for Home Improvements?

Advantages of Releasing Equity for Home Improvements

What to Consider Before Using Equity Release for Refurbishments

Is Equity Release Right for My Home Improvement Project?

How a Specialist Can Help

How Do I Release Equity for Home Improvements? 

Equity release is a type of financial product that enables homeowners, typically aged 55 or above, to access the equity tied up in their property. It provides a way to unlock a portion of the value of your home in the form of tax-free cash without having to sell the property or move out. 

Releasing equity can be useful because it can allow you to convert the equity in your home to money you can use for various purposes, including home improvements. This can be especially helpful for older homeowners who have built up assets and want to release equity to boost their financial flexibility in later life.  

In cases like this, it is common for borrowers to put this extra cash towards home improvements to enhance their quality of life. It is also commonly used to raise a deposit for an investment property, support relatives, and fund care fees.  

Equity release is popular because it is a relatively straightforward way to raise flexible funding. However, reducing equity in your property means that when you sell your property, the money you’ll receive will be significantly less than the resale value.  

Types of Equity Release for Home Improvements 

There are two primary types of equity release: 

  • A. Lifetime Mortgage: A lifetime mortgage is a popular option that allows homeowners to borrow against the equity in their property. The loan is repaid, along with any accrued interest, when the property is sold. It provides a lump sum or a series of smaller payments to fund your home improvements. It can also be used even if you own your home outright.
  • B. Home Reversion Plan: Home reversion plans involve selling a portion of your property to a home reversion provider. In return, you receive a lump sum or regular payments while retaining the right to live in the property. When the property is eventually sold, the provider receives their share of the proceeds. 

How to release equity for home improvements

Who Can Use Equity Release for Home Improvements? 

Typically, equity release is available to individuals aged 55 and above. Some providers may have a higher minimum age requirement, such as 60 or 65, but there is no upper age limit. 

  • Equity release is specifically for homeowners. You should own a property, which can be a house or an apartment, and it should meet the minimum value requirements set by the provider. 
  • Equity release is often considered by individuals who require additional funds to supplement their retirement income or to finance specific expenses, such as home improvements, medical costs, or debt consolidation. It provides a way to access the wealth accumulated in the property without selling it. 
  • If you have a medical condition that could impact your life expectancy, you may qualify for lower interest rates or be allowed to borrow more via an ‘enhanced lifetime mortgage’. 
  • Equity release can be part of your long-term financial plan because it allows homeowners to access the value of their property to support their lifestyle or achieve certain goals.  

If you’re considering using equity release for home improvements but passing on a significant portion of your property's value to beneficiaries is a priority, other funding methods may be more suitable. 

A variety of options could be available to you to finance home improvements, such as downsizing, second-charge mortgages, personal loans or a tailored home improvement loan.

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Advantages of Releasing Equity for Home Improvements 

The main advantage of using equity release for home improvements is that it’s relatively flexible. In many cases, interest is paid when the property is sold instead of paid monthly like a standard mortgage. 

Equity release offers several benefits, including a lump sum or regular payments to fund your home improvement projects. It can also allow you to remain in your home while enjoying any improvements you've made to the property.

Equity release is a popular method of financing home improvements because...

The funding is flexible

It’s likely you won’t have to explain the details of your home improvement project in excessive detail to your lender.

Access to substantial funds

Property refurbishments often require significant funds to cover renovation costs, materials, and labour. Equity release provides access to a substantial sum of money by allowing homeowners to unlock the equity tied up in their property. This allows you to finance the refurbishments without depleting your savings or using external loans.

Avoidance of additional debt

Equity release eliminates the need for additional debt to finance property refurbishments. Rather than obtaining a traditional loan or increasing mortgage debt, you can leverage the equity in your property, reducing the financial burden of repayments and interest charges.

Preservation of savings

Using equity release for property refurbishments allows you to preserve your savings for other purposes such as emergencies, future expenses, or retirement planning. Instead of using a substantial portion of your savings for refurbishments, you can tap into the value of your property and maintain a financial safety net.

Increased property value

Property refurbishments funded through equity release can potentially increase your home's value. By investing in renovations and upgrades, you can enhance the appeal and functionality of your property, making it more attractive to potential buyers in the future. This increased value can contribute to a higher return on investment when the property is eventually sold. 

How to release equity for home improvements

What to Consider Before Using Equity Release for Refurbishments 

Before proceeding, it can be beneficial to assess your home improvement needs and establish a clear vision of the changes you wish to make. Take the time to prioritize your goals, whether it's renovating the kitchen, adding an extension, or upgrading the bathroom. By understanding your objectives, you can better determine the funding you’ll need and how to structure your project.

Age restriction

Equity release isn’t suitable for everyone, and lifetime mortgages are specially tailored to homeowners aged 55 and over who are looking towards retirement. In many cases, you’ll need funding to make changes to your property before this stage of your life, so this option won’t be suitable for you.

Cost and interest charges

Equity release involves borrowing against the value of your property, and interest charges do apply on the released funds. Over time, these interest charges can accumulate and impact the overall cost of the equity release plan. If the primary purpose is home refurbishment, the total cost, including interest, should be carefully evaluated to ensure it is justifiable compared to alternative funding options.

Long-term commitment

Equity release is a long-term financial commitment that typically lasts until the property is sold. This means that the loan and interest charges will continue to accrue over a potentially extended period. If you're considering short-term refurbishments or have plans to sell the property in the near future, the long-term commitment of equity release may not align with your goals. 

Impact on inheritance

Equity release reduces the amount of equity available in your property, which can impact the inheritance you leave for your loved ones. If you plan to leave a substantial portion of your property's value to beneficiaries, equity release may not be the most suitable option.

Future financial needs

It's essential to consider your future financial needs and requirements beyond home refurbishments. If you anticipate needing funds for other purposes, such as healthcare costs, long-term care, or other expenses, committing a significant portion of your property's value to home refurbishments through equity release may limit your financial options in the future.

Flexibility limitations

In some cases, equity release plans may restrict how the released funds can be used. Some providers can impose conditions or limitations on the specific types of home refurbishments that can be financed through equity release. It's important to review the plan's terms and conditions to ensure they align with your refurbishment goals and intended use of the funds. 

Considering these factors, it's crucial to carefully evaluate the costs, long-term implications, and alternative funding options before deciding if equity release is the right choice for funding home refurbishments. Seeking independent financial advice from a specialist in equity release can provide a comprehensive assessment of your circumstances and help determine the most suitable solution for your specific needs. 

Is Equity Release Right for My Home Improvement Project?

Equity release comes with various considerations but can also be useful in the right circumstances. Taking the time to research your project and consider your own situation and financial needs can help ensure you choose the right finance option. Working with a specialist broker can make the process more efficient and offer personalised guidance to help you make informed decisions.  

Releasing equity from your property can provide the financial means to undertake your home improvement project. By understanding the different types of equity release, assessing your needs, researching your options, and seeking professional guidance, you can embark on your home improvement journey with confidence.

Remember, careful planning and thorough research are key to making the most of this opportunity while creating the living space you've envisioned. 

Release equity for home improvements

How a Specialist Can Help 

Releasing equity for home improvements is a significant financial decision, so it's advisable to seek professional guidance throughout the process. A specialist mortgage broker can get you the best deals on the market and guide you through the application, liaise with lenders and complete the paperwork on your behalf.  

At Clifton Private Finance, we have relationships with private and mainstream lenders and always prioritise getting you the best deal for your circumstances. Our wealth of industry knowledge means we can connect you with lenders who fit your specific needs.

To see what we can do for you, call us at 0117 205 4829 or book a free consultation below.

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