Rising house prices have been a boon to the property industry for many years now, but what does this mean for equity release? Equity release schemes are becoming increasingly popular as the cost of living and homeownership both rise.
This article will discuss how rising house prices could impact equity release and look at how you can secure your finances in retirement.
Continue reading to find out more!
How Does Rising House Prices Affect the Equity Release Market?
Rising housing prices mean that homeowners have the opportunity to release more equity from their homes!
In addition, if the market value2 of your home increases significantly in the period between when you take out a loan and when your plan comes to an end, your family could really benefit.
For example, if prices increase by 25% over five years while your fixed interest rates remain unchanged, then there might be leftover funds when your house is sold, once the loan, plus interest has been covered.
If you’re considering borrowing against your property through equity release, make sure that you understand how changing market conditions or interest rates can affect what you owe.
Pro Tip: Releasing too much equity could mean that your family will be left with no inheritance if property prices crash when your home is sold.
Find out more about: The Pros and Cons of Equity Release.
Why House Prices are Rising
Rising house prices are a consequence of the demand for housing outstripping supply, as well as inflation. Inflation is the rising price of goods and services, which all sorts of factors can cause. One such factor could be a country’s monetary policy3 strategy to maintain low inflation rates.
In recent months there has been strong demand from buyers for property in many parts of the UK, including London, where prices have risen significantly since 2017.
This trend will likely continue into 2021 as long as lifetime mortgage interest rates remain at historically lows levels – something which may not always be the case! Higher than average wage growth also means people are more able to afford houses too.
A lack of new properties coming onto the market is another issue: look how few homes were built during Margaret Thatcher’s era when she tried unsuccessfully to ‘right size’ housing provision.
The result has been that a lack of new homes built in the 1980s and 1990s means there is now an undersupply, and this will continue until more properties are due for completion.
What Rising House Prices Means for Equity Release
The increase in house prices is not just good news for the property market. People are increasingly turning to equity release schemes as they struggle with high living costs and lower pensions income due to increased life expectancy and low-interest rates on savings accounts.
As people live longer than ever before, it’s important that their finances remain secure in retirement – this may mean drawing down pension incomes or taking out loans against a home’s value (or both).
In addition, some older homeowners who bought their homes decades ago will have had little time since then to build up more assets.
These homeowners should consider requesting smaller payments over longer periods if entering into any agreements about future repayments of debt.
Should I Take Out an Equity Release Scheme Now That House Prices Are Rising So Quickly?
It depends on whether you want to buy a new property or have access to cash payments for as long as you live.
If the latter, then taking out a lifetime mortgage would be best suited for your needs – this will allow you to borrow up to 100% of the property’s value and have payments throughout retirement until death with no impact on what is owed or how much money is available for borrowing.
How Do Changing Market Conditions or Interest Rates Affect My Home Loans?
Increasing house prices means many people will find themselves with more equity in their properties than they had anticipated when taking out a loan (e.g., value up 30%).
This will enable them to take out larger loans without impacting what is owed or how much money is available for borrowing – so long as borrowers make repayment installments!
How Could Housing Market Conditions Affect the Number of Mortgage Repayments?
If interest rates increase (e.g., rise from 0% to, say, 0.25%), then monthly payments may be higher than expected due to a greater cost for borrowing money.
This means that there will be less leftover in cash after each installment – which is bad news if you are taking out loans against your property’s value and don’t have any income!
Rising house prices are great news for homeowners, particularly those looking to release equity from their homes. Your increased property value means that you can access more money than you could ever before.
Additionally, your family might end up paying less for your home when you pass away or move into permanent care. Have a look at what happens to equity release when you die to learn more.