House prices have risen exponentially in many cases over recent years, leaving those that have owned property for a while, and managed it correctly, with a surplus of capital. Drawing equity from your home is one way to gain funds to put into new investments. These days there are a few other things to consider though.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Drawing down equity is harder than it was
Since the Mortgage Market Review (MMR) in October 2012, the financial landscape has changed.
It seems lenders need more reason to accept an application to draw down equity from your home.
Increased regulation around mortgages means that more planning is required to ensure you get a successful result.
Whilst options are available, sometimes with for mortgages with a 95% loan to value, it is likely that you need to know which lenders are going to help you out, and which maybe have tighter internal policies to adhere to.
Irresponsible spending and irresponsible lending
If you are seeking to draw equity for things like paying off your tax bill, or to pay off an overdrawn director’s loan account, these could be considered as irresponsible spending.
As there is a real focus in the financial market on responsible lending, these reasons could go against the new policies of banks and lenders.
Even wanting to withdraw cash just so it isn’t locked in property, can be considered as irresponsible on you as the homeowner, as invariably a lower mortgage means a lower, and more affordable monthly payment.
In general, there are still options, but there are more things to take into account when looking to draw equity these days. Working with a professional mortgage broker helps to cover all your options.
Drawing equity for property investment or renovation
Drawing down money from one property to then invest in another, has been something that many property owners have reaped rewards from, historically. They then wait a few years for further growth and draw down again to make another investment.
This is how many individuals grew a modest property portfolio.
Nowadays, the new Stamp Duty surcharge on second homes is somewhat deterring people from creating a retirement nest egg through property.
Also, the new rules that are about to come into force from April 2017 that restrict the amount of mortgage interest that can be claimed against rental income, is deterring people investing in buy-to-let property.
Lenders are still open to drawing down equity where there is commercial viability. This could include new property investment ventures as well as renovation.
However, again, there are typically still a few more considerations that need to be worked through as part of the application process.
Looking to draw equity? Speak to Darren
If you are thinking about drawing equity from your home for investment, renovation, or another reason, speak with Darren to help define your best options.
Tel: 01403 780 770
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