With the way equity release products are advertised, you’d be forgiven to think that you won’t be able to leverage the equity tied to your home until you retire.
But that’s not quite the case.
In this article, we’ll explore the different ways you can release equity in a house under 55 and help you figure out the best way you can do that.
Equity release is the process of cashing in some of the value of your home.
Equity release schemes, like lifetime mortgages or home reversion plans, are only available to people that are over the age of 55. Home revision plans require the applicant to be at least 60 years old.
However, that doesn’t mean that you can only access the equity in your house once you turn 55.
You cannot release equity in a house under the age of 55 with a lifetime mortgage or a home reversion scheme.
But, there are other equity release options for people under 55 that allow them to access their equity at any age via different methods of borrowing.
Equity release products have age limits to make them commercially viable for the providers.
When taking out a lifetime mortgage, your provider lends you money that will eventually be repaid from the sale of your home. Since the loan accrues interest, it can exceed the sale value of the home if it goes on for too long.
Similar restrictions apply with home reversion schemes because providers do not want to wait too long before being able to sell their share and make a profit.
One way to equity release for those under 55 is to transfer the share of your property to your partner who qualifies for a formal equity release product.
If you’re married and bought the home together, the property will likely be considered a matrimonial asset. You should consider contacting a mortgage broker to figure out the details.
If you’re not, gifting your share to your partner can be risky– it will leave you with no protection if the relationship were to break up, and you might end up losing both the share of your home and your right to equity.
Note that if you still have a mortgage on your property, you won’t be able to transfer equity without your mortgage lender’s consent. Even if they agree, you can’t use equity release until the property is mortgage-free.
If you don’t qualify for an equity release mortgage because you are under 55, you’re still paying your mortgage, or transferring your share isn’t an option, here are some other ways you can use to leverage the value of your home:
When it comes to accessing equity, one of the most popular options for people under 55 is remortgaging.
It gives you access to some of the value tied up to your home, and you can do it while still paying your mortgage.
Let’s say that you’ve bought a home worth £200,000 with a £180,000 mortgage and a £20,000 deposit, with an LTV ratio of 90% (at the time). If your house rose in value to £250,000 and you’ve already paid off £10,000, your home now has £80,000 worth in equity, with an outstanding debt of £170,000.
You could remortgage to an 80% mortgage of £200,000, which would give you £30,000 to spend while paying off the previous mortgage balance of £170,000.
Retirement interest-only mortgages (also called RIO mortgages) are similar to lifelong mortgages and usually available to people over the age of 50.
The loan is often paid off when you die, sell the house, or move into long-term care and you’ll only have to prove that you can afford the monthly interest repayments. The property you’re using also has to be your main residence, and you might be required to own a certain minimum amount of equity.
If you’re looking for an equity release alternative for younger people, then your best bet is a home improvement loan.
Home improvement loans are often personal, unsecured loans (like the ones that Everyday Loans offer) used to make home renovations. They aren’t tied to any collateral, so you won’t risk losing your home or a valuable asset, but they usually have a higher interest rate.
A home equity loan is a type of secured loan that you can take out against the equity in your home. This means that if you default on payments, your lender can take your property and sell it to cover what you owe.
The amount you can borrow depends on how much equity you have. You can usually borrow up to around 85% of your home equity. However, if the value of your property dropped or you just started paying your mortgage, then you’re unlikely to have much to borrow– if anything.
This type of loan is a blend between a credit card and a home equity loan. It is secured by the borrower’s home, and they can commonly borrow up to 85% of the value of the home.
However, unlike other loans, HELOC gives borrowers access to funds on an as-needed basis, which means the payments might vary. On the plus side, you won’t be paying for money you don’t yet need.
If you’re on a tight budget, can’t afford to maintain your place, and need quick access to money, then you might consider selling your home. You can move to a smaller, more affordable living space or a similar-sized property, but in a cheaper area.
If you have the space and the means, then renting a room is a great way to earn some extra money and save on taxes (under the Rent a Room Scheme, where you’ll get up to £7,500 a year tax-free).
While traditional equity release products are only available to people over the age of 55 (and sometimes 60), there are other options to release equity in a house under 55 and borrow money against the value of your home. You can try to gain access to your equity through your partner, provided that they’re older, or choose from the list of available loans and mortgage products.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.