Releasing equity means remortgaging for more than you currently owe and taking the difference in cash. It is one of the cheapest ways to borrow a substantial sum, because the debt is secured on your home — which is also precisely why it needs care.
This article is about capital raising on a standard residential remortgage, which is available at any age. It is not about equity release products for later life, which work very differently.
How much equity do you have?
Equity is your property's current value minus your outstanding mortgage balance.
Lenders will not let you borrow all of it. Most cap capital raising somewhere between 75% and 85% of the property value, depending on the lender and the purpose. So on a property worth £250,000 with £120,000 outstanding, you have £130,000 of equity, but you might be able to release £70,000 to £90,000 of it rather than the full amount.
Two things determine the ceiling: the loan to value cap and affordability. You have to clear both. Having plenty of equity does not help if the larger monthly payment fails the income assessment.
Many Leicester homeowners in areas like Oadby, Evington, Wigston, Birstall and Glenfield have built up meaningful equity, particularly those who bought before the last decade's growth. That equity is often larger than people assume, because they benchmark against what they paid rather than what the house is now worth.
What lenders accept as a reason
Lenders will ask what the money is for, and the answer affects both whether they lend and how much.
Generally straightforward:
- Home improvements — extensions, loft conversions, kitchens, bathrooms
- Buying out a partner following separation
- A deposit for another property, including buy to let
- Helping a family member with a deposit
Accepted with more scrutiny:
- Debt consolidation — widely available, but capped by many lenders
- Starting or investing in a business
- A large one-off purchase such as a vehicle
Usually refused:
- Investment in shares or speculative assets
- Paying a tax bill, with some lenders
- Anything the lender considers speculative
Be straightforward about the purpose. A lender that discovers the real reason later can withdraw the offer.
Home improvements — the common Leicester case
A large share of the equity release we arrange locally funds extensions and loft conversions, which makes sense given the housing stock. Leicester's 1930s and post-war semis in Evington, Braunstone, Birstall and Wigston frequently have the plot for a rear or side extension, and converting rather than moving avoids stamp duty and moving costs entirely.
Worth knowing: improvements can increase the property's value, which may improve your loan to value at the next remortgage. That is a genuine benefit, though it should not be relied on — no valuation is guaranteed.
Debt consolidation — read this part carefully
Consolidating credit cards and loans into your mortgage reduces your monthly outgoings. That is real and it can be the right decision for someone under genuine pressure.
But you should understand exactly what you are doing:
You are converting unsecured debt into secured debt. Unsecured debt is unpleasant if it goes wrong. Debt secured on your home puts the house at risk.
You will usually pay more overall. Moving a five-year loan onto a twenty-five year mortgage lowers the monthly payment while increasing the total interest considerably — often to more than the original debt.
It does not fix the cause. If spending patterns do not change, the cards refill and you now have both.
Think carefully before securing other debts against your home. Consolidating debts into a mortgage typically means paying more interest over a longer term, and your home is at risk if you do not keep up repayments.
We will tell you plainly when consolidation is the wrong answer. Sometimes it clearly is not — a large balance at a high rate, a stable income and a genuine plan can make it sensible. But it should be a considered decision, not a default one.
The alternative worth comparing
A further advance from your existing lender — additional borrowing on top of your current mortgage, without moving lenders. It can be quicker and avoids disturbing a good existing rate, though you are limited to one lender's offer and may end up with two sub-accounts on different rates and end dates.
We compare a full remortgage, a further advance, and sometimes a second charge loan, and show the total cost of each.
Talk it through first
Releasing equity is usually a good decision made for the wrong reasons, or a bad decision made for good ones. It repays a conversation.
Call 0116 277 7536 or see remortgage advice in Leicester.
More guides: remortgage guides for Leicester.
