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The Equity Release Market is Tipped for Major Growth in 2021
Independent brokers and financial advisors across the country are projecting a successful year ahead for the equity release market. With interest among customers having remained surprisingly high throughout 2020, even in the face of major economic uncertainty, three-quarters of experts anticipate significant market growth over the next 12 months.
Specifically, new data published by Canada Life suggests that many financial advisors anticipate the value of the equity release market to exceed ÂŁ6 billion in 2021 for the first time.
Modest yet reassuring gains
The figures from Canada Life suggest that around 42% of financial advisors experienced growth in their equity release activities during 2020. While this is not particularly impressive growth, it is nonetheless reassuring given the financial impact and uncertainty of the COVID-19 pandemic.
Many had expected the market to grind to a complete halt, when in reality it remained âbusiness as usualâ for a surprising proportion of lenders.
As a result, 62% of advisors now believe that the equity release market will be operating at pre-lockdown levels by the end of the second quarter next year. Itâs also widely predicted that the marketâs performance will continue to accelerate indefinitely as more people than ever before express an interest in equity releases.
Changing priorities and purchase intent
Meanwhile, Canada Lifeâs figures indicate a series of interesting shifts in how those planning to release equity in their homes intend to allocate the funds raised. Evidence also suggests that the average equity release customer age in the UK will also reduce: 50% of advisors predict a spike in popularity among younger homeowners next year.
45% of experts also see more equity release customers applying for bigger loans, releasing much larger proportions of the equity tied up in their homes.
As for the allocation of the funds, 70% of advisors predict that their customers will give portions of the proceeds to their children or grandchildren next year. 65% see equity release funds being used to pay off debts, marking a slight reduction from the 71% recorded in 2020.
The primary motivations among equity release customers for leveraging the money tied up in their homes are expected to remain the same next year. These include paying off the debt during retirement, concerns regarding insufficient pension savings, and the ongoing volatility of the stock market. Get help working out the costs of paying a mortgage using our UK mortgage calculator.
In addition, the impact of COVID-19 on peopleâs finances, income, and long-term financial stability is also likely to influence decisions regarding equity release.
âThere is no doubt 2020 has been challenging for many reasons, but it is great to see so much positivity looking forward to next year,â commented Alice Watson, Head of Marketing at Canada Life.
âAdvisors are clearly anticipating a growth in demand driven by both improved awareness of equity release and families reassessing their finances in light of the pandemic. Predictions around a shift in customer age and an increase in loan size point to a move in how homeowners view their home as a financial asset, much like pensions or ISAs.”
âThe world is changing around us, but closer to home, we need to consider how best to use our overall wealth to provide the secure financial futures we seek. Advisors are best placed to show clients how to plan for that future.â
Bankruptcy Mortgages Explained
Contrary to popular belief, bankruptcy will not necessarily count you out of the running for a mortgage. A history of bankruptcy on your file can create additional challenges, but it does not make qualifying for a mortgage impossible.
It is simply a matter of carefully considering the options in order to pair your requirements with an appropriate lender you can count on.
How soon after bankruptcy can you get a Mortgage?
In the immediate aftermath of declaring bankruptcy, qualifying for any kind of credit can be extremely difficult. Particularly when major banks and lenders are concerned, those who have recently been declared bankrupt are excluded from almost all lines of credit across the board.
Any history of bankruptcy in your financial history will appear on your credit file for a period of six years. During this period, you can expect to be scrutinised by the vast majority of mainstream lenders when applying for lines of credit. The more recent the bankruptcy, the lower the likelihood of qualifying for a loan.
If you are considering applying for a mortgage during this period, you will need to take your business to a specialised lender. Away from the UK High Street, there is an extensive network of flexible and accommodating specialists who welcome applicants with flawed credit histories. Even those with recent bankruptcies are not necessarily ruled out of contention. You can even use our UK mortgage calculator to work out the cost.
You may have recently been declared bankrupt, but you may also be in an extremely strong financial position with a provable source of income. Likewise, you may already own one or more properties, against which you may be able to secure a loan to access the funds you need.
Bankruptcy need not prevent you from qualifying for a mortgage, but it is essential to seek independent advice before applying. Consult with an independent broker to discuss the available options and choose an appropriate course of action.
What size deposit do you need?
With all types of âsubstandard’ finance, bigger deposits make it easier to qualify for a competitive loan. During the first couple of years following bankruptcy, you may be required to provide as much as 40% as a minimum down payment. Over the subsequent two to three years, this could fall to as little as 25% or even 15%.
If you declared bankruptcy six or more years ago, there is a good chance you will qualify for a mortgage with a deposit as low as 10% or even 5%. Though it is worth bearing in mind that the larger the deposit you provide, the more likely you are to be offered a competitive rate of interest and reduced overall borrowing costs,
Larger deposits often hold the key to not only qualifying for a poor-credit mortgage but also ensuring you access a competitive deal. If possible, it is therefore worth considering offering a down payment that exceeds the lenderâs minimum requirement.
Which lenders offer bankruptcy mortgages?
On the UK High Street, the list of lenders that specialise in bankruptcy mortgages is relatively short. In fact, any evidence of bankruptcy whatsoever is likely to count you out of the running with the vast majority of mainstream lenders.
This is why it is important to set your sights beyond the usual high-street names if you are looking to get a good deal with a history of bankruptcy. With the help of an established independent broker, your requirements and financial position can be paired with an innovative and accommodating lender who specialises in post-bankruptcy mortgages.
By working with an independent specialist, you are far more likely to both qualify and be offered a competitive deal you can afford. Particularly if you are otherwise in a strong and consistent financial position, your history of bankruptcy may not be held against you.
Speak to an independent broker to arrange a whole-market mortgage comparison, including the specialist lenders you wonât find on any UK high street.
Let-to-Buy: How to Assess Affordability
Let-to-buy can be a fantastic option where selling your home the conventional way is impossible or not preferable. For an overview of borrowing costs and typical let-to-buy rates, use our helpful let-to-buy calculator.
How does let-to-buy work?
Let-to-buy bears many similarities to a classic buy-to-let investment opportunity. With let-to-buy, the whole process works in reverse.
Many homeowners, upon finding their dream property, encounter difficulties selling their current home. In other instances, those who have spent years or decades investing heavily in their current home would rather hang onto it than sell it.
In both instances, let-to-buy could be the ideal option. This is where you retain ownership of your current property, let it out to tenants, and use the rental payments to cover your current mortgage. You are then free to take out a new mortgage on the property you intend to buy, leaving you with just one mortgage to pay from your own income.
Your tenants effectively pay your previous mortgage, and you ultimately end up with the two homes under your ownership.
Switching mortgages
Let-to-buy can be flexible and affordable, though it is not without its complexities. Letting out a property under the terms of a standard mortgage usually goes against most lendersâ terms and conditions.
It is therefore necessary to switch the mortgage on your current home to a specialist buy-to-let mortgage, as you will subsequently be letting the property out to tenants rather than living in it. This may also mean a higher APR than the prior conventional mortgage, along with additional borrowing costs applicable to buy-to-let mortgages.
This is one of many reasons why comparing the market in its entirety for a competitive deal is essential. After gaining a basic overview of what is on offer with our let-to-buy calculator, call to arrange an obligation-free consultation.
Establishing affordability
All applicable costs of a let-to-buy need to be carefully considered before applying for a new mortgage or buying a second home.
For example, owning a second property may increase stamp duty liability. Rental income tax is also payable on the money earned by letting out a property.
In addition, becoming a landlord means taking responsibility for the upkeep and maintenance of two homes. Mortgage arrangement fees, legal fees, valuation fees, and completion fees may also apply. all of which should be discussed with a broker before applying. You can even use our UK mortgage calculator to work out all the costs.
Let-to-buy is therefore not an ideal solution for all homeowners but can prove a profitable venture for many.
Independent broker support
If you have any questions about the let-to-buy process or are considering investing in a second home, we can help. Book your obligation-free, cost-free consultation with one of our experts to discuss the options available.
We will help you assess affordability, eligibility, and whether letting go is the right move for you. Call or email anytime to learn more.
Top-Pick Property Hotspots for 2021: Where Have House Prices Risen the Most?
To say that 2020 has been quite an unusual year for the UK property market would be a major understatement. With the fallout of the COVID-19 crisis expected to linger for some time, real estate experts are predicting similarly turbulent conditions throughout much of 2021.
Uncertainty and economic turmoil have, however, had little impact on the appeal of some of the UKâs most desirable places to live. Looking ahead into 2021 and beyond, there are several towns and cities where property prices are predicted to continue accelerating wildly.
The most lucrative places to live or own
According to the latest figures published by Ocean Finance, house price growth over the past two decades in some of Englandâs key towns and cities has been astonishing.
Right at the top of the table comes Manchester, with a whopping 143% average property price increase since 2000. This means that a property purchased for around ÂŁ74,000 20 years ago would now be worth almost ÂŁ180,000âan enormous profit for those who invested at the right time.
Leicester followed in a close second position, having achieved an impressive 132% average property price growth in two decades. Those who bought in 2000 and sold in 2021 could be looking at average profits in the region of ÂŁ155,000.
Bristol came in third, achieving 122% average property price growth from ÂŁ137,742 to ÂŁ291,839. Thatâs a huge profit of more than ÂŁ150,000 on the table for those who sell in 2021.
Unsurprisingly, the vast majority of people who purchased properties in London 20 years ago could make an absolutely enormous profit by selling now. On average, a ÂŁ360,000 property in London would sell for approximately ÂŁ785,000 todayâan increase of 116%.
Surprisingly, strong performance was noted in Kingston-Upon-Hull, where average property prices have increased by 112% over the past 20 years. In monetary terms, this amounts to an average profit of around ÂŁ60,000 for those who purchased two decades ago and intend to sell on todayâs market.
Cambridge didnât trail too far behind with its own 101% average house price increase over the same two-decade period. Average house prices in Cambridge have risen from ÂŁ224,000 to an astonishing ÂŁ450,000, amounting to a generous profit of around ÂŁ226,000.
Property prices in Brighton have also increased exponentially over the years; todayâs average asking price is around ÂŁ372,000, compared to just ÂŁ187,000 20 years ago.
Homeowners in Derby who purchased properties in 2000 would have been looking at an average cost of just under ÂŁ83,000âtheir homes are subsequently worth an average of ÂŁ162,000 today, an average increase of 96%.
Last but not least, Coventry has performed similarly well since 2000, having achieved an average property price increase of 95%. This means that a ÂŁ97,000 property picked up 20 years ago would now sell for around ÂŁ190,000, pocketing you an impressive profit in the process!
Why Is Commercial Finance More Expensive?
Commercial finance provides businesses of all shapes and sizes with access to essential funding for almost any legal purpose. Where available, commercial finance rates are usually slightly higher than those of a conventional residential mortgage.
For a rough idea of what to expect, use our helpful commercial finance calculator to see how commercial finance works in practice.
Where commercial finance rates and/or borrowing costs in general exceed those of conventional borrowing by a significant margin, particularly when it comes to mainstream lenders as opposed to specialist commercial finance providers, there is often a reason why, but what is it about commercial finance that makes it a costlier financial product than a comparable conventional loan?
Elevated risk for the lender
One of the factors that contributes to the higher costs of commercial finance is the elevated risk for the lender. Commercial finance is considered slightly riskier in the sense that the borrowerâs ability to repay is often based largely on the performance of their business.
As there are no certainties in any sector or line of work, there are no concrete guarantees the business will be able to keep up with its repayments long-term.
This risk is, however, largely augmented by the provision of adequate security to cover the costs of the loan. This is also why the security a lender may request to cover the costs of a commercial loan would need to have a higher combined value than those used to cover a more conventionally secured loan.
Different types of commercial finance
Commercial borrowing costs can also be affected by the type of commercial finance the business or individual applies for. In some instances, commercial finance is applied for and accessed in the form of an overdraft, in which case the borrower can expect higher overall borrowing costs than a similar applicant taking out a commercial loan from the same lender.
Competition also plays a role in establishing commercial finance rates and overall borrowing costs. There is not quite as much competition in the commercial lending landscape as in the residential mortgage sector, which means lenders do not have to be quite as competitive with the rates they provide.
Along with these factors, additional considerations like the applicantâs credit history, the performance of their business to date, their business acumen, and so on may all influence the competitiveness of the deals they are offered.
In most typical cases, commercial finance costs at least slightly more than conventional borrowing.
Independent broker support
Irrespective of how much you intend to borrow and your intentions for the funds, seeking independent broker support at an early stage is essential. This will enable you to not only compare as many options as possible from specialist lenders across the UK, but also present your case in such a way as to open the door to competitive rates.
For more information on any of the above or to discuss your requirements in more detail, call anytime for an obligation-free consultation with a member of the team.
Secured Second Charge Lending Sector Remains Buoyant During Second Lockdown
Secured second charge lending activity has maintained its momentum across much of the UK, despite difficult conditions during the recent lockdown. Published data suggests that in October, monthly volumes increased a further ÂŁ19 million to reach ÂŁ71 million. Total secured loan completions were also up more than 30% from the month before, reaching 1,816 loans completed.
Loan completion times were also found to have improved between September and October, averaging around 11 days compared to the previous 12 days.
Further growth is predicted
The Finance & Leasing Association (FLA) reported a major spike in second-charge in August, fuelled primarily by pent-up demand being released on the sector following the first national lockdown.
Going forward, experts believe that activity will double by the end of the current quarter.
The message from the secured loan industry is very clear: It is business as usual in lockdown 2, with no significant changes or restrictions to criteria announced following the PM’s announcement of a second lockdown.
When the coronavirus hit in March, lending figures dropped over 80%, but this time around it is very different as October showed the biggest monthly growth of 2020.
There is now no restriction on physical valuations, and for over a decade, the industry has offered a huge range of products available using Home Track or similar desktop valuation models.
The optimism stems from several lenders announcing securitization in recent weeks. First, we saw Pepper Money, owned by Optimum Credit, announce the first securitization (specifically for second charges) since the start of the pandemic to the tune of ÂŁ277 million, and a huge easing of criteria followed to ensure a return to pre-COVID-19 lending levels in the coming months.
West One parent company a Specialist Finance also announced their first-ever securitization of ÂŁ267 million to be split across their first and second-charge products.
A New Up-Front Rental Payment System Was Launched in the UK
Following a successful two-year trial, a new up-front rental payment system is being rolled out across the UK. Known as the Advanced Rent Option, the new system provides letting agents with the option of offering landlords one yearâs rent in advance as part of their service package.
According to those responsible for the ARO, the scheme could radically change the private lettings industry by enabling agents to build better relationships with landlords.
The Advanced Rent Option simply enables agents to provide upfront payments when securing the business of landlords and has proven to be an extremely popular and powerful prospecting tool during the schemeâs initial trial.
Simon Shine rock, who created and launched the ARO, said that response among small to medium-sized businesses in particular has so far been outstanding.
âThis project has been in the pilot stage for two years, and it has proven to bring huge benefits to the lettings market, offering peace of mind to landlords as well as an invaluable marketing and prospecting edge for selected agents,â he said.
âThe response since launch has been beyond our expectations, and we have been able to demonstrate that ARO is the holy grail of landlord prospecting and lead generation, attracting more landlord inquiries at a lower cost than any other form of marketing.”
âNow agents across the UK can stand out from the crowd by offering landlords something that no one else can. ARO is available for reliable, proactive, and go-ahead agents who understand the value of the ARO and how to use it to fast-forward their businesses and grow their managed portfolios.”
âWe are looking forward to working with our ARO licenced agents to offer landlords a better, more secure, and more versatile service.â
Elsewhere, Moss Property director Sanjay Gandhi has been making use of the scheme for several months, with ARO having played a direct role in helping him grow his local business.
âI wanted to look at ways to generate new landlords and thought that ARO would be the perfect product to do that. We have competitors in the town who offer a rent guarantee, but the difference with that product is they take a 35 per cent cut and donât really offer market value,â he said.
âSince launching ARO a few months ago, weâve grown our portfolio by around three to four per cent. Iâve got to highlight that itâs not for everyone. Iâve had many landlords whoâve said they like the idea but are happy to have the rent paid monthly and go on with our standard service. But we would not have been able to speak to that landlord if we didnât ARO in the first place.”
âItâs been a great new business generator and has helped to bring more landlords into our standard service, as they know that with us, they can switch over to an ARO licence should they decide they want it at a later date.â
Equity Release: The Perfect Product for âRightsizingâ Your Home?
For some, skyrocketing property prices are making it borderline impossible to relocate. For others, it is more a case of not wanting to abandon everything they have worked hard to make their own over the years.
Motivations and justifications vary, but the popularity of ârightsizingâ is at an all-time high across the UK.
The COVID-19 pandemic has resulted in more UK households than ever before reconsidering their priorities. Spending more of their free time at home and, in many cases, now working from home, we are being forced to rethink the potential value tied up in the homes we live in.
According to economists, that is one of many reasons why equity release application volumes are likewise hitting record numbers up and down the country.
The ârightsizingâ phenomenon
Downsizing has traditionally been a popular choice among retirees, those approaching retirement, and individuals looking to retire early. You decide your current home is not suitable for your needs, so you set your sights on something smaller, with the potential to free up some cash while doing so.
Nevertheless, the appeal of scaling things down to fit into a smaller home is far from universal. The prospect of going through the selling and relocating process in general can also be off-putting.
An increasingly popular alternative to the above, ârightsizingâ is all about making the best of the home you currently live in.
From major interior renovations to the construction of extensions and comprehensive exterior landscaping works, there is much that can be done to improve the appeal and enjoyment of your existing home. Even something as simple as the addition of a conservatory coupled with a new kitchen could really make all the difference.
In any case, rightsizing is almost always cheaper and easier than moving.
Tapping into your homeâs equity
The options available for funding projects like these are also broader and more attractive than they have ever been. Among retirees and older homeowners in particular, equity release is growing in popularity like never before.
Equity release involves taking out a lifetime mortgage against the value of your home, which is subsequently repaid when your home is sold (either at the time of your death or when you move into permanent care).
You are handed a lump sum based on the value of your property and the size of the loan you need, or you can opt for a long-term series of monthly instalments. In both instances, the money is yours to use in any way you like. Major home improvements are a popular choice for many equity release customers.
After which, you are free to continue living in your home exactly as before, with no monthly repayments to worry about.
Consult with a broker before applying
If you are interested in an equity release, it is essential to consult with an independent broker in advance. This will enable you to find an unbeatable deal from a reputable lender while at the same time verifying equity release as an appropriate product for you. You can even use our mortgage calculator in the UK to find out the exact costs.
Most lenders impose very few restrictions with regard to how the funds can be spent, though this is also something to verify before going ahead with your application.