Buying a home is often one of the biggest purchases that someone will make in the course of their lifetime. This tends to involve a large sum of money being invested at a single point in time, which may not be seen again until the property is later sold or passed down to future generations. There are however some options available when attempting to gain access to the funds invested in a property that does not include it being put up for sale.
At Miller Samuel Hill Brown, our specialist residential property lawyers provide advice and support to help guide our clients through this largely misunderstood area of the law. We will work in partnership with you, and ensure that you understand what options are available to you.
There are two different ways to gain access to the money that has been invested in a property:
When someone purchases a property they will normally have secured a loan from a bank to fund that purchase. They will then, over the course of time, repay the loan with the property itself used as the banks security if the loan repayments cannot be met. This is called a mortgage.
Re-mortgaging a property involves getting another loan from a bank, without having to move home. However the loan that is offered will normally come from a different lender.
An alternative to re-mortgaging a property is to release some of the equity that has accumulated in a property.
You will be able to borrow a proportion of the value of your property which you will be able to use straight away. However depending on the type of Equity release scheme that you use, some form of payment will have to be given back to the scheme provider.
There are various reasons why you may be considering re-mortgaging your property:
You might be considering adding some value to your property e.g. by adding an extension, but not be able to raise the funds independently. Re-mortgaging your property could provide you with the funds. Alternatively you may be looking for some extra money to spend on living costs or a special event. A re-mortgage will allow for this, provided you are able to meet the necessary repayments.
Depending on what rate you originally secured your mortgage for, you may be able to save some money if you moved to a different mortgage provider. The interest rates that are charged on mortgages do tend to change, so you may be able to make some savings if there is a cheaper provider available.
While you may have secured your mortgage at a favourable rate some years ago, your circumstances may have changed. You may need to secure a more predictable mortgage that has a fixed repayment scheme or you may be looking for a mortgage that allows greater flexibility in terms of repayments.
It is true that re-mortgaging your property is a very attractive way to gain access to some extra money. However it is important that you understand that this involves taking on more debt. As a result you will need to consider whether or not taking on another financial obligation is worthwhile. It would also be very helpful to find out what penalties would be applied if you paid off your existing mortgage early: many lenders attach a charge if you pay off your mortgage early, meaning it may actually cost you more to re-mortgage your property.
As with re-mortgaging there are lots of reasons why you may consider releasing some of the equity in your home e.g. you want to take a holiday or cover an unforeseen expense. The attraction that equity release has is that you can get access to some of the value of your property, without the need to move.
Primarily, it is very important to understand that equity release, while attractive, will not be suitable for everyone. Secondly, it should be borne in mind that there are different kinds of equity release schemes. The most popular are:
With a lifetime mortgage you can release a proportion of your property’s value, and interest will be charged on the sum of money that is released by the scheme provider. Depending on provider, the interest charged can be either fixed or variable.
There are also different kinds of lifetime mortgages available: some offer a large lump sum early on, while others are more flexible and could allow you to take out different sums of money at different points.
The point of the lifetime mortgage is that nothing will have to be paid back to the equity release scheme provider until you pass away or have to enter care.
Under a home reversion scheme you will sell a share of your property to a scheme provider, in exchange for a sum of money. You then become a co-owner with the provider but you will still be able to live in and enjoy your home.
You will normally be offered less than the market rate for the proportion of your home that is being discussed. Also it is important to understand that like lifetime mortgages, scheme providers will vary the sum of money on offer depending on whether you meet their criteria, particularly the ages of participants.
The point about these various methods to gain access to some extra money from your property is that there are different options available, and some may be more suitable than others depending on your circumstances. It is essential that you equip yourself with the necessary advice to understand the range of options available to you.
At Miller Samuel Hill Brown, our expert property lawyers are regularly involved in advising on property finances. Let us work with you to identify your needs and discuss the options available to you. If you have any questions regarding your property finances, please contact our specialist property team on 0141 221 1919 or fill in our online contact form.