Mortgage Equity Withdrawal

As the value of your property rises, so does the percentage of it that you own outright. This equity increases your personal wealth and can be used to fund home improvements, investments or any major purchase.

In this article, we’ll look at the various ways you can access the capital in your home and explain why you should use a broker to make sure you get the best deal.

What is mortgage equity withdrawal?

Mortgage equity withdrawal (MEW) – also referred to as Housing Equity Withdrawal (HEW) – is a US term and one we don’t generally use in the UK when we talk about releasing capital tied up in property. But there are several products that allow you to access your equity.

UK equivalent products include…

• Remortgaging to release equity
• Lifetime mortgages
• Home reversion
• Retirement interest-only mortgage
• Secured loans

How does equity withdrawal work in the UK?

This depends on the option you choose. We have broken down each variation of mortgage equity withdrawal below…

Remortgaging

If you are of working age, remortgaging is often the best way to release equity. The equity accrued in your property usually means that when you remortgage, your loan to value (LTV) is lower which allows you to access better rates.

In some cases, you will be able to borrow more without increasing your monthly repayments either by borrowing at a reduced rate of interest or extending the term of your mortgage. Lengthening the term will increase the overall cost of borrowing and you should seek advice from a broker first.

Remortgaging is subject to the usual eligibility criteria:

• Age
• Affordability
• Employment status
• Credit history
• Condition and value of the property

Many mainstream lenders cap the amount of equity you can release at 90% but it is possible to remortgage to 100% with some specialist lenders. The brokers we work with have access to the whole of the UK market and will ensure you apply to the right lender according to your circumstances to borrow the amount you want at the most favourable rate.

Lifetime mortgages

This is the most common equity release product. Lifetime mortgages are available to homeowners over 55 but can only be secured against your primary residence. They are a way of releasing equity regardless of your personal financial circumstances.

Lenders are concerned with the property rather than the borrower. You can usually borrow up to 60% of the market value of your home and only have to repay the loan after you pass away or move into long term care.

With this type of equity withdrawal, you will have the option to make monthly repayments to reduce the overall cost of borrowing or have all the interest ‘rolled up’ and added to the loan when it is settled.

A lifetime mortgage can affect the value of your estate and you must seek independent advice before applying.

Home reversion plans

This is a less common form of equity withdrawal in which you agree to exchange a percentage of your house at below market value to the provider in return for a cash lump sum, regular income or a combination of the two. You can continue to live in the property even if you exchange 100% of it.

The maximum amount of equity you can borrow is 80% but to do this you would typically need to give up 100% of your property. Home reversion is an expensive way to borrow but can be useful in some circumstances. Again, professional, independent advice is vital if you are considering this method, but bear in mind that most equity release advisors recommend lifetime mortgages over home reversion plans.

Retirement interest only mortgages

A retirement interest only (RIO) mortgage is an affordable way to borrow against your property in later life. By only paying back the interest on your loan, you keep monthly payments low. The capital is repaid when your property is sold because you have downsized, moved into long-term care or passed away.

Your application will be subject to the usual eligibility criteria and you will need to pass the providers’ affordability and credit checks. Each lender has its own risk assessment model so bad credit does not necessarily mean you won’t qualify for this type of mortgage equity withdrawal but you may have to pay higher rates.

Secured loan

If you don’t qualify for a remortgage or are still tied into a fixed rate term on your existing loan, you may opt for a secured loan if you have enough equity in your property.

Secured loans do not have to be taken through the same company you have your mortgage with as lenders can apply a second charge against your home.

Many providers cap the amount they will lend at £125,000 but you can take the total value of loans secured against your property to 100%. Secured loan rates are typically higher than mortgage rates and start at around 3.4%, at the time of writing.

The higher the perceived risk, the higher your rate will be. Before taking out a secured loan, you should speak to an independent mortgage advisor who will be able to guide you through all your borrowing options to ensure you make a fully informed decision.

If you’re based in the U.K and would like to see how much equity you could release from your property, simply input an estimated value of your property along with your age into our calculator here:

How a broker can help

When you need to access the equity stored in your home, there are thousands of options open to you. The only way to decide which is best is to evaluate every product on the market against your own circumstances.

Without the help of a broker, this is a laborious and nigh on impossible task. The brokers we work with have whole-of-market access and are experienced in securing mortgages with specialist lenders. They have working relationships with niche lenders and can access exclusive rates only available through brokers and equity release advisors.

Get matched with an expert equity release advisor

We only work with brokers who are qualified to advise on equity release so you can be confident that all your equity release options will be fully assessed and that the advice you receive is based on the most effective and affordable way for you to release equity from your property.

We offer a free advisor-matching service that will take your needs and circumstances – including the reason you want to release equity – into account to pair you with the broker who is best placed to help you achieve your plans. This will be someone we have trained, vetted and handpicked for you because of their track record helping similar customers to you.

Call today on 0808 189 0463 or enquire online and we’ll set up a free, no-obligation chat between you and them today.