All that equity
With recent figures lamenting the amount of personal debt in the UK, isn’t it worth considering the other side of the coin? Your Mortgage looks at debt and equity.
Housing equity – the value of your home minus your outstanding mortgage – is now valued at £2.8 trillion in the UK, according to the latest research from Halifax. Furthermore, that figure has risen by some £2 trillion over the past decade. When it comes to debt, however, we’re pretty badly off, with Credit Action, for example, saying that the average UK household is £56,234 in debt. But what do these figures actually mean, and how do they relate to each other?
Well, increases in property prices over the past 10 years, those of us who own our own homes are not in such a bad position. While the above figure for household debt initially seems staggering, if you bear in mind that for those who own their own home, a significant proportion of that debt is probably taken up by their mortgage, then the situation isn’t as catastrophic as it may seem.
In fact, figures from Halifax also reveal that the increase in housing assets (the value of all UK homes) in 2007 outpaced mortgage debt by £120bn, which basically means that house prices increased at a faster rate than outstanding mortgage debt. For those home-owners who have acquired equity in their property, there are options available to them, should they need to free some of it up.
Remortgaging to consolidate debt
It is possible, though not always advisable, to roll your debts up into your monthly mortgage repayments. The advantage of this is you would have fewer payments going out every month, and you could save on interest by having everything charged at the rate you pay on your mortgage. The disadvantage is that, because you pay off your debts over your mortgage term instead of taking out a personal loan, which would normally only last around five years, you accrue a lot more interest in the process, thus increasing the overall cost. That said, if your aim is to make your life more financially stable from month to month, then consolidating your debts into your mortgage might well be worth considering. Click here get get more information on debt consolidation and access to our remortgage fee calculator.
Putting your housing equity to good use
If you want to free up some extra cash to fund home improvements, for example, you may be able to increase the size of your mortgage. This means that you make available the cash you have already paid off, thus adding a number of years on to the term of the loan. You could of course, make bigger monthly repayments and keep your mortgage term the same length. Speak to a broker or your lender to assess your options. Click here for more information on remortgaging, or see Your Mortgage magazine.
Releasing equity as an older home-owner
Ever heard of the phrase “asset rich, cash poor” and wondered what it meant? Well, many older home-owners currently find themselves in a situation where they have paid off their mortgage and own their own home, but find it hard to make ends meet. If all your wealth is tied up in assets, such as is the case for many older, retired home-owners, then an option to make cash available is equity release.
With a lifetime mortgage, you receive a regular income based on the value of your property. This income will continue to be paid out until the home-owner sells up or passes away. Alternatively, you can opt for a home reversion scheme, which means you sell a percentage of your home in return for a lump sum. You are able to remain in the property until you move or until your death.
Many equity release providers subscribe to a code of conduct set out by an organization called SHIP. Click here for more information on SHIP.
Get more information on equity release online now.
Tags: Equity release, lifetime mortgages, mortgage, Mortgage news, mortgages
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February 20, 2008 at 12:03 am
i think you explained everything straight forward and i agree to it 100%