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Mortgage equity withdrawal

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Oct 24, 2022

Mortgage equity withdrawal (MEW) How it works

You might have heard or seen the term mortgage equity withdrawal and wondered what it meant.

This article will explore how UK homeowners can use their housing equity withdrawal to secure financing.

It doesn’t matter if you need extra money for home improvement, consolidation or gifting a deposit. Or simply improve your lifestyle.

We have a few mortgage providers lending, and we will introduce you to the equity release specialist suitable to you; start your application below:

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What is mortgage equity withdrawal?

The term mortgage equity withdrawal (or MEW) refers to equity releases. You might be wondering if equity release is a good idea or are close to contacting us about getting it, so this guide gives you everything you need to know.

MEW allows homeowners to use their home equity as collateral to secure a loan. This loan can be a home equity loan, second loan or similar HELOC (home equity line of credit).

Equity simply refers to the percentage of the property you own. If you are repaying a mortgage, it is the amount you have already repaid in addition to the deposit you made at the beginning.

Example: Let’s say you purchased a £100,000.000 home with a 20% deposit. After repaying £10,000 of your loan, your equity would be 30%. As you pay off your mortgage and the house prices increase, equity increases.

Rightmove or the Land Registry can be used to check the sale prices of similar properties in your local area. This will give you an idea of the current market value of your home.

You may have used an equity release calculator online but now require mortgage advice. Good news, click the link below. We provide mortgage advice free of charge with our specialist mortgage brokers.

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Is there equity withdrawal available in the UK?

There are many ways that you can maximise and make the most of the equity in your UK home.

It will depend on your personal situation, your approximate annual income, your available amount, and what you require equity released for, for example, to fund home improvements.

Click the link below, and speak with our equity release experts.

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Choose the best equity release option.

There are many ways to make use of equity withdrawal in your home. However, the equity release products we refer to in the UK for those over 55 are not always recommended.

The mortgage could be another option for a joint borrower sole owner (JBSP) or retirement equity release products that may be a good option dependent on your circumstances.

Before you borrow against your house, consider the amount and duration of additional debt and how it will impact your financial plans.

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Remortgaging can help you release equity from your house

It may be possible to refinance if you have substantial equity in your home to get additional funds.

This could affect your monthly payments and increase your overall loan-to-value (LTV). This option might still be less expensive than secured loans and similar options, so discuss the numbers with your mortgage broker.

Here are some things you need to know:

  • Negative Equity – If your house price drops dramatically, your equity could follow. This can lead to negative equity, where you owe more money than your home is worth.
  • Remortgaging before. Always consider early repayment fees and exit fees for your current mortgage.

Increase your borrowing with your current mortgage lender

You may be able to talk to your current mortgage lender if you are only looking to borrow a small amount.

This type of request is usually accepted by lenders, particularly if it has the potential to increase your home’s value, such as borrowing money to renovate or remodel a bathroom or kitchen.

Secured loan

Secured loans are available to homeowners who may be eligible. These loans can often be more accessible to arrange than other options. These are secondary mortgages that are secured against your property inquiry.

If your mortgage defaults lead to your property being repossessed, the lender will be first in line to repay the debt.

While interest rates are generally higher than first-charge mortgages due to their shorter terms, you may still be able to pay less overall.

Bridging loans

Bridging loans can be used for commercial purposes. However, they are also a viable alternative to equity withdrawal in some circumstances. For example, if equity release or remortgaging is not an option.

Bridging loans can be very fast to arrange, but they have high-interest rates and associated costs.

You will need an alternative exit strategy (a way to repay the loan) if you don’t plan to sell your home. Each bridging lender has its exit strategy.

Remortgaging to a retirement interest-only (RIO) mortgage

RIO Mortgages are interest-only mortgage products specifically for retired persons. These mortgages allow you to access some equity in your home and reduce your monthly payments.

This type of mortgage is not subject to a term limit and can only be repaid when all the people named on it have died or moved into long-term care.

Products for UK Equity Release

Two types of equity release products are available in the UK: lifetime mortgages and home-reversion plans. These products are available only to homeowners over 60 and 55 years old. They allow you to borrow against your home’s value.

Eligible applicants may include those who own their home and those with an existing mortgage balance. The Equity Release Council has a firm hold on the UK equity market. However, you are strongly advised to consult an experienced equity release broker before making any financial commitments.

Mortgages for life

A lifetime mortgage is the most popular of both equity release products. This product is purely based on the home’s value. Traditional mortgage lenders are more concerned about the borrower’s income and credit standing.

You can typically release equity up to 60% of your home’s current value. However, applicants older than 60 may be eligible to borrow more.

Once you are gone or have moved into care, the loan can be repaid by selling your house. You can either repay the interest monthly or roll it up to increase the amount.

Here are some things you need to know:

Are you planning to leave an inheritance? A lifetime mortgage can affect the value of your estate. If you have any questions about how to protect equity that you wish to pass on as an inheritance, talk to a broker.

Negative equity – If the property market crashes, it could drastically reduce your home’s value and leave you with a shortfall. Your family is not liable for any debts, but the lender would absorb the entire proceeds from the sale.

Plans for home reversion

Although less common than the others, some lenders still offer this form of equity release. This transaction involves the sale of a portion of your home to the lender at a lower price than its current market value in exchange for regular income, a lump sum of money, or a combination of both.

You have the right to remain on the property regardless of how much you give the provider. There is no obligation to repay the loan term. However, once you have passed away, the lender will take the agreed portion of the proceeds from your home sale. This can reduce the inheritance amount.

Many equity release specialists do not recommend home-reversion plans. Instead, they prefer to help customers secure lifetime mortgages and other options.

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How a broker can assist you with equity withdrawal

An expert mortgage broker in equity withdrawal is the best to help you explore all options. They will assess your financial situation and help you understand the potential impact new borrowing might have on your homeownership and future financial plans.

After they have helped you choose the best option from the list, they will be able to recommend the best lender for you from a large market of lenders. This will help you get competitive rates and save time and money searching for the perfect product.

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Match with an expert in equity withdrawal

Any form of borrowing against your house involves some risk. As such, it is strongly advised that you speak with a broker like Loan Corp’s partners who knows your market to help you avoid entering into equity-based financial agreements.

The broker-matching service is free and will match you with an expert in retirement mortgages, equity release, bridging loans, or remortgages.

This depends on your situation, and our mortgage brokers will not only explain the benefits of the products in their area of expertise.

Still, they will also ensure you have considered that you know what equity release is, all of your options and made the best decision for your exact circumstances.

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What amount of equity can you take from a property?

It depends on the method you use to withdraw equity and your circumstances.

You can use a UK equity release product such as a lifetime mortgage to get a maximum of 60%; however, if you’re remortgaging, you may be eligible for deals with a loan ratio of up 95%.

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