These are tough times for raising finance especially for the potentially risky business of property development. And let’s be honest, it’s not always possible to rasie enough finance through a traditional mortgage or home loan. Mortgage companies will want to take into account your salary and any other expenses you have such as other outstanding loans. All this could prevent you from buying your first development opportunity.
What is Equity?Equity is the difference between the value of your home and what you own. So if your home is worth £300,000 and your mortgage is £100,000 you have £200,000 equity.
Why use your home Equity?
As I mentioned before, raising finance has not been easy for many so the opportunity to increase borrowing on your existing property will offer any potential lender greater security and enable you to become, in effect, a cash buyer. This will enable you to move quickly should you see a worthy opportunity, this might also put you in a favourable position as a potential buyer.
What are the risks of releasing equity from my Home?
Before you embark on any finance to purchase a property you should seek independant advice. Raising finance on your home will increase repayments and the debt you eventually need to pay back. You need to be comfortable with this before you move forward, so a conversation with an independent advisor will highlight the risks that relate to your personal situation. You could loos your home if you fail to repay the loan, so please make sure you do your sums and if anything look too tight or too risky in terms of repayments don’t do it you could lose everything and gain nothing.
Most developers I know started by raising finance on their home. It’s not ideal but to secure any property you need to be well financed. Since the financial meltdown in 2007 lenders have been far more restrictive in re mortgage products. Only a few years ago it was possible to get a 100% mortgage based on the value of your home. Today the best product I’ve seen is for 75% so shop around, use brokers and take into account the overall loan including fee’s, which in recent years have gone through the roof. Lenders will always tempt you to put any fees onto the loan but you’ll be paying back in the long term.
How do I go about releasing equity from my home?
Releasing equity is, in effect, re mortgaging your home. You’re finding another mortgage product based on an up to date valuation. To this end you need to find a product on the internet or (better still) find a product through a broker.
There are 2 sorts of mortgage brokers. Independent – those that have no tie to mortgage products and can search the entire marketplace on your behalf. These guy’s charge for the advice they dispence; typically this is done at an agreed fixed price or an hourly rate or a percentage of the loan required. The other type of motgage broker are ‘commission tied’ brokers. These guy’s are’tied’ to a limited number of mortgage products so there’s no guarentee that you’re getting a the deal. However, thay do not charge as their fee is 100% commission from the lender. I’m not sure what value these guy’s add over any online comparison site but they seem to still get business. Since 2013 many advisors can only offer advise on a fee basis due to impending changes in the way financial products can be sold in the UK. For more information or to find a mortgage adviser visit unbiased.co.uk.