Releasing Equity from Property

People generally seem to have complete misconceptions over what they can and can’t do particularly when it comes to releasing equity from property. The last week has brought several of these cases to the fore where unfortunately we have to tell people the reality of what amount of money releasing the equity from property would bring them compared to what they thought they would be able to receive by releasing equity from property. Equity is essentially the value you hold in anything, the difference between what you own and what you owe on an asset. A house worth £100K with £50K owing to a mortgage company has £50K of equity and potentially in the current lending market up to £35K of that could be borrowed for other investments or renovations etc.

The lending criteria have become so stringent that apart from the costs which in this example could easily be £2K, the chances of actually borrowing that amount is very small as the requirements by the lending institutions is so great.

In one scenario a mature gentleman who has a property worth in excess of £300K and a 20 year old repayment mortgage with the Halifax of around £50K and therefore equity of around £250K, was hoping to borrow something like a further £200K by getting a new mortgage with a different lender. Unfortunately releasing equity from property now has certain criteria, like having a minimum income of £25K which this client didn’t so due to his personal circumstances the maximum he would be able to borrow is only about £100K, only half of what he required. Luckily we were able to show him a way of using what he could borrow to maximise his income plus reduce the costs by using his existing lender to get him on the road to financial security in his old age. Another client already has two investment properties and wants to borrow money to renovate one of them. As a single mother her income was again the problem but by using what she has already got we were able to show her a way forward using our contacts.

Releasing equity from property is becoming more difficult as the lenders are now taking precautions they should have taken before the credit crunch. These measures are in many ways negative as good landlords could effectively add much to the housing market and the economy as a whole. What the lending squeeze is doing is making more people have to sell their houses to cover their debts and therefore potentially making property values lower. There is little likelihood of large further drops though because foreign money is swamping the country to buy houses. This could mean most of the British housing stock and particularly the London market will be bought by commercial owners or Chinese, Middle Eastern and Indian owners who can easily borrow money against value and have the resources to back up their borrowings. This doesn’t necessarily mean the days of the small landlord are numbered, but it does mean they have to be far more systemised to achieve the wealth and freedom they seek.

Writing this from a beautiful Mexican location whilst tenants rent money continues to be paid into my bank account proves that it is still possible to have it all but it certainly is harder to progress than ever before. In my absence we held an event last evening to help novice investors on the road to finding their own financial freedom through property purchasing and management by others. What this also proves is that leaving things to those who do them best is far better than trying to do it all alone and working as a team allows everyone to find a better work life balance. Releasing equity from property is going to continue to be problematic for the foreseeable future and unless we have the team and strategies behind us we will struggle. On the other hand there is and there not likely to be, any shortage of cheap houses to purchase until such time as interest rates move up. With so many economies in dire straits it could be many years before we see what are effectively rich pickings for the wealthy coming to an end.

Self-employed people could surprisingly be at an advantage here as their income is verified by their personal tax calculation. This can be made up from a variety of earning such as dividends, earnings and property income whereas people in employment need to show their earnings unless they have three years’ experience of being a landlord when they would have the personal tax calculations with their income on it. Whatever your situation we are here to help you the best way possible so get in touch for a personal consultation.

 Always reduce costs when releasing equity from property.

Written by:
Lionel Palatine – He is a regular networker and a speaker at events as well as being a property author and adviser. He joint ventures deals and shows people how to buy property for low cost which are inclusive of all fees and deposits.

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