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.
How Does Rising House Prices Affect the Equity Release Market?
Great news!
Rising housing prices means that homeowners have the opportunity to release more equity from their homes!
You might find attractive interest rates as the Loan to Value (LTV1) amount will increase.
In addition, if the market value 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 policy2 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.
Things to Consider Before Jumping the Gun on Equity Release
Before you take out an equity release scheme in today’s house pricing marketplace, consider the following:
- How changing market conditions or interest rates could affect what you owe on your mortgage and how much money is available for borrowing against a property’s value.
- If you do have alternative options to consider.
Learn about: Equity Release Alternatives
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).
How to Find the Best Scheme for You
If you have a lot of equity in your home and want to maintain access to it, then an interest-only mortgage might be the best option for you.
This will allow you to take out loans against the property’s value, but without having any impact on what is owed or how much money is available for borrowing – so long as repayments are made!
Otherwise, if you’re considering taking out an equity release scheme (e.g., lifetime mortgages).
The way to find the right scheme for you is by contacting a financial adviser. They will then look at the various companies, plans available, and teach you which equity release companies to avoid.
Whatever plan to select, make sure that the provider is a member of the Equity Release Council3 .
Best Ways to Use Equity Release Schemes Now that House Prices are Rising so Quickly
The best way to use equity release schemes now that house prices are rising so quickly is by:
- Taking out a lifetime mortgage – this will allow you to borrow up to 60% of the property’s value and have access to a lumpsum or regular cash payments for as long as you live.
- You can select a home reversion scheme, releasing more equity as the valuation of the portion of your house you release will be higher.
Common Questions
Should I Take Out an Equity Release Scheme Now That House Prices Are Rising So Quickly?
Should I Consider Requesting Smaller Monthly Repayments?
How Do Changing Market Conditions or Interest Rates Affect My Home Loans?
How Could Housing Market Conditions Affect the Number of Mortgage Repayments?
In Conclusion
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.
