Equity Release

There are many stories at the moment about the credit crunch and mortgage lenders who are ‘tightening the belts’ due to lending to the so called Sub Prime Market. So with this in mind, is this the end of lending by these companies? Well not really when you consider that these companies only really make money when they lend money. They buy in money, either from other institutions or from the saver on the street, and then they sell it to borrowers at a higher rate. The difference between the two is their profit and careful management of this process makes it a very rewarding industry.

With the fact that we are entering a time where unsecured lending is being closely scrutinised and even lending where there is little security, like 95%-100% mortgages, are more difficult to get the lending market is going to have to look at more secure lending to continue their profit projections. Enter the Equity Release. Equity Release is a safer (in the lenders eyes) market for mortgages as there is a track record of the customer paying the existing mortgage and the amount of security as a percentage of the value of the property is usually kept quite high. But what does Equity Release mean to you as a borrower?

There are many ways that money can be borrowed and as usual the element of risk for the lender is matched with the interest rate you pay. If you are not a home owner and you take out an unsecured loan, then the lender is exposed to risk, so they will look to temper that risk by making more profit. If you own your own home and there is a difference between its value and your liability against it (your mortgage) then you can re-mortgage your home for a higher amount and release some of the equity. Not so long ago this was thought to be a no-no from a consumers point of view as the money would be repaid over a 20-25 year period and the costs would be drastically higher than if the same amount was borrowed over a five year agreement on an unsecured basis.

House prices have risen drastically over the last few years so there are more and more home owners who have equity sitting in their home. Advertising from the lenders has been directed at these people to encourage them to realise this money and not wait until selling the property. Homeowners are now using this money for a multitude of purposes, to enter the investment property market, to extend the property, for improvements to specific rooms, for cars, for holidays, for private school fees, deposits for dependant’s property purchases and the numbers of borrowers is increasing.

It is an easy way to get your hands on extra funds, but always remember that you are increasing the lenders claim on your property and there is always big writing on the bottom of the forms ‘Your house is at risk of repossession if you fail to keep up loans secured against it’.

Just ensure that you do not risk the security in your property and that you take independent advice before you cash in this ‘easy money’.

Anyway have a good Christmas period and I will see you again in 2008.
Homefinder: Steven Bletsoe