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Can I Release Equity from My House Under 55?
Owning a home is a major financial milestone; especially if you manage to get your mortgage all paid off before you’re 55. However, it can also feel fairly frustrating, with all your money that represents a lifetime of hard work locked into your home.
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.
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 alternative methods for accessing the equity in your home if you are under this age. Below are some key options:
3 Methods to Release Equity Before 55:
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.
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 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 Note on Traditional Equity Release Restrictions:
- Lifetime mortgages and similar traditional 'equity release' products have a minimum age requirement of 55, which leads to confusion around the subject of 'releasing equity', but these are generally two separate things.
Check Your Eligibility
Understanding Equity and Equity Release Products
What exactly is equity? It’s 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 Equity
Equity is often shown as a percentage, representing the portion of that thing you own in full. When you take out a mortgage, you put in a deposit and the rest of the value is paid through a mortgage.
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.
Negative Equity
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 being left owing money to your mortgage provider and can be a very stressful and difficult situation to be in. Thankfully, negative equity is relatively rare.
Releasing Equity
When you have equity built up in your property, you can leverage it to fund further loans. This is the essence of equity release.
When you have 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.
Equity Release Products
Standard equity release products, such as lifetime mortgages, 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 because you pass away, move to full-time residential care, or sell the property.
Lifetime mortgages and similar products 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.
Our equity release case studies:
The Minimum Age for Equity Release
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.
3 Ways to Release Equity From a Property Before 55
While traditional equity release is out of the picture, that doesn’t mean you have to accept your funds being tied into your property.
There are many options for those under 55 to leverage equity for immediate financial benefit:
Remortgaging
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.
In the example above, a remortgage for £240,000 could be arranged, leaving £40,000 as equity in the property (14%), releasing £40,000 as cash, and continuing with a mortgage on better terms than the original.
If your primary mortgage is already paid off in full (you have 100% equity), then a remortgage would be more correctly referred to as simply a new mortgage. Planned well to not stretch your equity leverage, a new mortgage could be obtained with extremely low rates for cost-effective financing for your use.
Speak to a trusted mortgage advisor at Clifton Private Finance to get the best mortgage rates in the UK market today.
Selling Your Home
While selling your property may be exactly the situation you are looking to avoid, it still exists as a viable option for releasing equity. It is, in fact, the most basic way of releasing equity in any asset - selling it on.
You do not need to have 100% equity in your property to sell it, and any equity you do have will be realised as cash in the bank (after fees and other expenses).
In the earlier example, if the house is sold at £280,000 after five years, there would be £200,000 that would need to be paid back to the mortgage lender, and £80,000 in equity value that you would have in the bank.
That £80,000 can be used for any purpose you see fit, including as a sizeable deposit for a new home purchase.
Second Charge Mortgages
A third option is to obtain a second charge mortgage against your property. A second mortgage is secondary to your primary mortgage and exists alongside it.
In the example above, it could be possible to leave the original mortgage in place, acquire a secure subordinate loan for £50,000 as equity release, and maintain £30,000 as untouched equity in the home.
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.
Another example is if your credit score is a lot worse now than it was when you took out your first mortgage. In this case, you may not be eligible for the same rates today that you secured on your primary mortgage. So again, remortgaging would mean your whole mortgage moves to a higher rate, as opposed to a second charge that would only result in a higher rate for the extra amount borrowed.
The Pros and Cons of Releasing Equity Under 55
As with all financial products, there are significant considerations to be made when thinking about a remortgage or other secured loan, as well as many benefits.
This includes:
- 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 before securing finance against your home.
Getting Early Equity Release with Clifton Private Finance
At Clifton Private Finance, our mortgage and second-charge loan experts are dedicated to getting the best rates and most flexible terms for you.
Contact us today to unlock the potential in your property and take a step in reaping the rewards from your years of hard work.
