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How to Release Equity from a House (Even If You’re Under 55)
Owning a home is a major financial milestone; especially if you manage to fully pay off your mortgage before you’re 55. However, major life events can create a need to access finance. You may want to:
- Help a child to buy their first home
- Cover care costs for your parents
- Pay for a wedding
- Pay off other debts
- Invest in a home improvement project
- Secure a deposit for a buy-to-let property
When faced with situations like these, it can feel frustrating to have all your money, which represents a lifetime of hard work, locked into your home.
Equity release products such as lifetime mortgages give homeowners the ability to release the capital locked in their property as cash for use today, but a little research shows that the minimum age for equity release is 55.
So, what can you do if you’re under 55 and want to unlock the cash tied up in your home? At Clifton Private Finance, we have some answers.
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Can I Release Equity from My House Under 55?
Yes, you can release equity from your house under 55.
While traditional equity release products, like lifetime mortgages, require a minimum age of 55, there are still three alternative methods for accessing the equity in your home if you are under this age:
- Remortgaging
- Second charge mortgages
- Selling your home
3 Methods to Release Equity Before 55
Looking to release equity from your house, but don’t meet the minimum age threshold for traditional equity release products?
Let’s take a look at each of your options in more detail.
1. Remortgaging
- Refinancing your existing mortgage to access built-up equity.
- Potentially lower monthly payments or access to a lump sum of cash.
- If you own the property outright, you can take out a new mortgage against it.
Remortgaging is the process of refinancing your current mortgage deal to hopefully obtain superior rates, as well as potentially releasing equity built up in the property.
When you have equity built up in a property, you can often utilise it to get a more preferential mortgage, lowering your ongoing monthly payments. Alternatively, it can be released as cash for you to use on other projects.
If your primary mortgage is paid off in full, then you have 100% equity in the property. In this case, remortgaging essentially becomes acquiring a new mortgage. With proper planning, you can avoid stretching your equity leverage and obtain a new mortgage with extremely low rates. This is a very cost-effective way of turning equity into finance.
2. Selling Your Home
- Directly converts your equity into cash by selling the property.
- Allows you to use the proceeds for other purposes or invest in a new property.
- A bridging loan could help you secure short-term finance if you decide to downsize.
While selling your property may be exactly the situation you are looking to avoid, it still exists as a viable option for releasing equity. In fact, selling any asset is the simplest way of releasing the equity you have in it.
You do not need to have 100% equity in your property to sell it, and any equity you do hold will be realised as cash in the bank (after fees and other expenses).
3. Second Charge Mortgage
- A second loan taken against your property's equity without altering the primary mortgage.
- Useful if you have a favourable rate on your primary mortgage or a lower credit score now.
- Higher interest rates compared to primary mortgages due to increased lender risk.
A second charge mortgage is an additional loan leveraged on the equity you have built up in your property, and it exists alongside your primary mortgage. It doesn’t require you to remortgage or refinance your existing mortgage - that stays untouched.
Because subordinate debt is secondary to the mortgage, in the case of a repossession it is only repaid to the lender once the mortgage is fully considered. For this reason, it is more of a risk to a lender than a mortgage and will come with higher rates to mitigate this risk.
However, secondary finance such as this can be quickly obtained and may be advantageous if the current mortgage package is superior to any possible remortgage option.
For example, if you have a low rate on your existing mortgage and don't want to lose it, a second charge mortgage may be better than remortgaging, as you'll only pay the higher rate on the new borrowing amount as opposed to your full mortgage.
At Clifton Private Finance, our remortgage and secured finance team have the expertise needed to navigate the complexities of the secondary debt marketplace. We will work with you to get the best possible rates and terms that suit your personal need.
The Pros and Cons of Releasing Equity Under 55
There are many considerations when you’re thinking about a remortgage or any other type of secured loan. Take the time to weigh up the potential positives and negatives of releasing equity from your property.
These could include:
- PRO: Releasing equity means you don’t need to sell your house outright to raise funds.
- PRO: Money tied up in the house is made available for your immediate use.
- PRO: Refinancing with built-up equity considerations often leads to superior interest rates.
- PRO: Well-managed capital today can be invested wisely to boost personal financial standing.
- CON: Refinancing your home puts it at risk of repossession if payments are not made.
- CON: Interest will accrue on any loans secured against your property.
- CON: Remortgaging could make it longer before you own your home in full.
- CON: Unforeseen events could lower your property value and potentially lead to negative equity.
As with all significant financial decisions, it is wise to seek independent advice about your specific circumstances before securing finance against your home.
What is equity and how do you calculate it?
Equity is a finance term for the amount of something you own. When it comes to personal finances, you will most hear of it when talking about your house, though it’s also used for anything else you own (a car, for example). When you have equity in something, it means you own part (or all) of that thing.
Calculating the Equity You Could Release from Your House
Equity is often shown as a percentage, representing the portion of the house that you actually own. When you take out a mortgage, you put in a deposit and the rest of the value is paid in regular monthly payments with an agreed amount of interest.
On that very first day, your equity is equal to the amount of your deposit - that’s the bit of your house that you own in full. The remaining amount is leveraged to secure your mortgage, so you don’t fully own that, but over time as you pay the mortgage off, your equity rises.
As time goes on, your equity typically increases for two reasons: one, you’re constantly repaying the mortgage principal (balance); two, your property is likely to accumulate value which increases your equity by lowering the percentage of the property value securing the mortgage.
Is It Possible to Have Negative Equity in a House?
Yes, it is possible to have negative equity in a property. This occurs when the value of the property drops substantially after it’s first purchased. Negative equity can happen if the house is not properly maintained and becomes rundown, or by things outside of your control - for example, a large, noisy, and ugly factory is built nearby, driving house prices down.
Negative equity makes it impossible to sell your house without owing money to your mortgage provider, and it can be a very stressful and difficult situation to be in. Thankfully, negative equity is relatively rare.
Releasing Equity from a House
When you have equity built up in your property, you can leverage it to fund further loans. This is the essence of equity release.
With 100% equity in your property, you have a strong bargaining position to take out a new mortgage against it, essentially converting that equity into money in the bank or ‘releasing’ it.
How Do Traditional Equity Release Products Work?
Traditional equity release products are specialist loans with unique terms - namely that no payments are made during your lifetime and the balance of the loan becomes due when you no longer need the house - this may be when you pass away, move to full-time residential care, or sell the property.
There are two main traditional equity release products:
- Lifetime mortgage: A loan secured against the value of your property. You choose whether you will make monthly interest payments or not, and the lender will add any unpaid interest to the amount owed. A lifetime mortgage is typically available to those aged 55 and over.
- Home reversion: A sale of part (or all) of your property. There is no interest to pay since this is a sale, not a loan. A home reversion is typically available to those aged 60 and over.
These products usually come with a lifetime residential tenancy, meaning you can live in the property for the remainder of the term. Equity release providers are not in a rush to push you out of your home.
Check Your Eligibility with Our Equity Release Calculator
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Why Is There a Minimum Age for Traditional Equity Release Products?
Traditional equity release products are designed for use by homeowners with 100% (or close) equity in their homes to provide additional funds for use during retirement.
They have no repayment schedule and accrue interest throughout the term. In most cases, the lender will only receive a return on their investment when the homeowners die, making them a long-term investment.
Offering equity release to those under 55 would have negative consequences for both parties:
- The lender could potentially be waiting many decades to see a return.
- Risk assessment would be more complicated and rates would be high to compensate.
- The interest accrued would be significant and could outstrip the end value of the property, leading to a situation of potentially negative equity for the lender, and in extreme cases, saddled debt for the estate and its beneficiaries.
- Conditions of the equity release product would greatly limit options for the homeowner in later years.
- Additional difficulties and complications would be more likely from life events, such as subsequent marriage or children.
Getting Early Equity Release with Clifton Private Finance
At Clifton Private Finance, we advise on a range of finance options for those under the age of 55 who are looking to release equity from a property.
Our mortgage and second-charge loan experts are dedicated to getting the best rates and most flexible terms for you. We search the whole of the UK market on your behalf, then guide you through the most suitable options for your specific set of circumstances.
Contact one of our brokers today to see how we can help you make the most of the equity stored in your home.
Releasing Equity from a House FAQs
1. How long does it take to release equity from a house for under 55s?
Remortgaging typically takes 4-8 weeks, but this is an average. Your timeline will depend on your specific circumstances. For a second charge mortgage, you can typically expect the process to take around 2-3 weeks.
2. Could releasing equity from a house affect my access to benefits?
Yes, remortgaging or taking a second charge mortgage to release equity can affect means-tested benefits, such as energy grants and council tax reductions.
3. Can I remortgage to release equity with bad credit?
Yes, it is possible to remortgage your property, even if you have bad credit. However, this would almost certainly come with a higher interest rate. A second charge mortgage may be a better fit in this situation. We recommend you give us a call and talk to one of our expert brokers about your situation.
