The British property market continues its stellar rise from strength to strength, with little or no sign of abating in the near future. Those who have owned their properties for a number of years now find themselves sitting on significant profit, despite not necessarily living the lifestyle to match.
Homeowners are increasingly looking towards equity release as a way to get a cash boost to spend elsewhere, sometimes to re-invest in property either in the UK or overseas.
There are however, pros and cons to equity release, particularly with house prices approaching highest levels for a number of years.
Affordable interest rates
Much depends on interest rates and whether repayments will continue to be affordable for the borrowing term. Naturally, equity release on a property provides collateral against lending which affords better interest rates, although the exact benefits will obviously depend upon individual circumstances.
If the funds are required for a specific event, repairs, loan consolidation, further investment or other situation, equity release provides a relatively cheap solution.
Irrespective of the preferential borrowing rates available through equity release, it is essential to consider the additional loan payments on top of existing commitments and living costs. These will obviously include various expenditures connected with property such as council tax, and this must be taken into account when looking at equity release options.
Another factor to consider is the size of the loan relative to the amount of equity available in a property. Even with collateral to underpin the security of borrowing, some lenders may be influenced more by short to medium term cash flows when considering applications.
The majority of homeowners in the UK will be looking to leave their properties to children and family members. There are obviously death duties to take into consideration depending upon the size of a deceased estate. However, with equity release a loan is taken out on the property, to be settled upon death which may cause short-term cash flow issues for those inheriting assets or could potentially lead to the property being sold to cover debts secured on it.
Even though there are many people in the UK making significant returns on property assets, it is those who acquired properties in the 1970s and 1980s that are benefitting the most. Many homeowners in the UK who have paid off their mortgage, will have a significant profit on their properties and may be looking to live a little more, requiring funds for specific situations.
Leveraging for further property investment
With 100% equity available in a property, there is a perfect opportunity to realise a portion of the capital, particularly for re-investment in the property market. With growth in house prices set to continue, there are plenty of investment opportunities available for those with the available capital.
Secured lending is the cheapest way to finance further property investment, particularly if the investment property is income-generating, ie a buy to let or student accommodation.
Most of the world's biggest property investors purchase their portfolios through leveraged finance. By doing so, it is possible to take advantage of a climate of low interest rates to maximise profit levels. Sound property investment is hugely dependent upon timing and so if there isn't the capital available to invest when an opportunity becomes available, leveraged borrowing, such as equity release, is quite often the only way to go.
- Monday 24 November 2014