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Five Longstanding Myths about Equity Release
Equity release has been growing in popularity across the United Kingdom for many years; however, the market remains subject to scepticism and scrutiny.
Assumptions and untruths about equity release can be harmful, steering potential candidates in entirely the wrong direction. Sourced from a main equity release provider, each of the following five long-standing myths continues to create an inaccurate picture of how equity release really works.
1: Equity release is too expensive to be a worthwhile option
An equity release scheme works similarly to a mortgage, i.e., the loan balance is, in many instances, subject to a competitive APR. According to the latest figures from Age Partnership, the average interest rate charged on a quality equity release product today is around 3.29%. One-fifth of equity release products are currently being offered with an APR of less than 3%, and most of them are fixed at that rate for over 15 years.
Rates are not only competitive but are also getting lower. In 2015, average rates in the region of 6% were the norm.
2: I could fall into debt if my home’s value decreases
Traditionally, there has been the risk of ending up paying back more than the actual value of your property. This has occurred in instances where an equity release customer’s property has substantially fallen in value, to such an extent that the loan value exceeds that of their home. Most responsible and reputable providers today, however, cover their products with negative equity guarantees.
This means that even if the subsequent sale of the property doesn’t raise enough money to cover the total costs of the loan and all associated fees, the customer or the customer’s estate will not be liable for the excess.
3: The provider will take control of my home
Policies differ slightly from one lender to the next, though most providers enable equity-release customers to maintain total control of their assets. There may be some limitations imposed, such as the extent to which you can structurally modify your home or implement changes that could severely impact its market value. Nevertheless, your home will remain almost completely under your control, meaning you can do with it as you like.
It is nonetheless important to check the terms and conditions outlined by the provider prior to going ahead. Consult with an independent broker to ensure you fully understand the conditions of your agreement.
4: There will be nothing left behind for my family to inherit
Equity release inherently reduces the size and value of your estate, though it by no means wipes it out entirely. Again, it depends on the terms and conditions of the equity release product you choose, mainly in relation to the size of the loan against the total value of your property.
If your main concern is ensuring adequate inheritance for your loved ones, discuss the available options with an independent broker ahead of time. You could even use our UK mortgage calculator to find out the exact costs.
5: The money raised can only be used for specific purposes
Last but not least, it’s true to say that the vast majority of people release the equity tied up in their homes to pay off their mortgages and fund home improvements; however, there are no specific limitations placed on how the funds can be allocated.
Whether you are looking to improve your everyday living standards, buy a new car, or take the trip of a lifetime, the money is yours to do with as you wish. It is important to consult the terms and conditions of the provider carefully, just in case there are any limitations or restrictions in the small print.
Two-Year Remortgage Deals Back at Halifax, Rates Overhauled
Halifax has confirmed the re-introduction of its popular two-year remortgage product, while at the same time outlining a series of overhauls to several major remortgage deals.
Customers remortgaging with Halifax now have a total of three fee options to choose from at four LTV (loan-to-value) levels, with loans available for up to 85% of the total value of the property.
Remortgage options will now be available with fee options of £1,500, £999, or no fee at all. The Halifax confirmed that only remortgage loans of £250,000 or more will be available with the highest fee option.
Halifax confirmed that remortgage rates will vary from 1.2% up to a maximum of 60% loan to value with the £1,499 fee option through to 2.88% up to a maximum of 85% loan to value with no fee payable.
Additional interest rate increases have been applied to the lender’s five-year and three-year remortgage deals: up to 0.28% with some loans. There have also been reductions of up to 0.14% elsewhere.
Further advance rates and product transfer rates have been reduced by up to 0.52%; other products have been increased by up to 0.22%.
BM Solutions
At the same time, BM Solutions, a Lloyds Banking Group company, has announced alterations to its own five-year and two-year further advance and product transfer rates.
However, the bank stopped short of confirming the extent of the interest rate increases in its statement.
Manchester is the UK’s New Buy to Let Hotspot
Manchester has risen through the ranks to become the UK’s most appealing and profitable prospect for buy-to-let investments. That’s according to the latest figures from Aldermore’s Buy to Let City Tracker, which positions the city of Manchester above all other UK regions as the country’s new hotspot.
The second-best location for buy-to-let investments was Cambridge, followed by London in third place.
Aldermore’s tracker takes a number of factors into consideration, ranking towns and cities by way of short-term rent yields, average monthly rent prices, long-term returns through increasing house prices, the strength of the rental market in the region, and the total housing stock available.
Major residential and commercial development projects across Manchester since 2015 also contributed to its newfound status as a top buy-to-let location, according to Aldermore.
Key points of appeal
Manchester has one of the lowest overall vacancy rates and available property inventories of any comparable city, resulting in an average annual house price growth of 4.1%.
In addition, private landlords operating in Manchester benefit from consistently solid rental returns. Fuelled by a city with one of the largest private rental markets in the UK, 31% of those living in Manchester currently rent privately.
Speaking on behalf of Aldermore, head of mortgage distribution Jon Cooper highlighted Manchester’s growing potential as a safe haven for buy-to-let investments.
“There has been a high level of uncertainty for landlords since the COVID-19 outbreak, and they have had to continuously adapt to a raft of challenges, but with so many working from home right now, it reinforces the importance of a robust and diverse private rental sector,” he said.
“The changing needs of renters, whether to move to a new location or a different type of property to fit flexible working demands, have created investment opportunities for landlords.”
“The private rented sector is vital to the economy right now and its recovery from the pandemic, so landlords should seek portfolio advice from their lenders to see how they can look at new ways to support the sector.”