Many homeowners build significant equity in their property over time, yet not everyone fully understands how to access it. Equity is the portion of your home that you truly own and can be a valuable financial resource if accessed and used strategically.
Remortgaging offers an opportunity to release some of this equity, providing funds for a variety of purposes, such as home improvements, consolidating financial commitments, or supporting loved ones. With careful planning and professional guidance, releasing equity can be straightforward, safe, and support your long-term financial goals.
In this article we cover:
- What equity is and how it builds over time.
- How releasing equity works when remortgaging.
- How much you can realistically access.
- The benefits and key considerations.
- The steps you can take to prepare for this process.
What is equity and how does it build over time?
Equity represents the portion of your property that you truly own and is calculated as the difference between your property’s current market value and your outstanding mortgage balance.
How does equity build over time?
Your equity in your home will increase due to two factors:
- As you make mortgage repayments, the portion of your home you own will increase as you are paying down your outstanding balance.
- As the housing market grows, your property may increase in value. As a result, your share of the property grows, leading to increased equity.
For example:
If your home is worth £500,000 and you owe £300,000 on your mortgage, your equity will be £200,000. If your property increased in value by £10,000, and you pay off £1,000 through capital repayments, your equity would rise to £211,000, which is portion you own and could potentially access through releasing equity when remortgaging.
What is the difference between releasing equity and equity release products?
Although the terms sound similar, they refer to two different approaches to accessing the value tied up in your home.
Releasing equity simply means borrowing more money against your property, usually by:
- Remortgaging to a new lender.
- Further Advance with your existing lender, increasing your loan amount (subject to lender criteria).
Conversely, Equity release is a specific type of financial product (e.g. lifetime mortgage) typically designed for homeowners aged 55 and over.
| Feature | Releasing equity | Equity release products |
| Age requirement | None | 55 and over |
| Based on affordability | Yes | Not typically |
| Monthly repayments | Required | Usually optional |
| Interest | Paid monthly and over the mortgage term | Tends to compound over time |
| Loan term | Defined (e.g. 25 years) | Until death, sale or long-term care |
| Impact on inheritance | None | May reduce your estate |
Why does this distinction matter?
Confusing the two can lead to misunderstanding your options.
- If you are working and/or have sufficient income, remortgaging to release equity is often the more straightforward and cost-effective option.
- Equity release products are generally considered later in life (55+), where income is limited but housing wealth is available.
What does it mean to release equity when remortgaging?
Releasing equity when remortgaging essentially involved taking the equity that you’ve built up in your property and turning it into cash. This can either be done with a new lender, or with your current lender. If done with your current lender, this is known as a ‘further advance’.
The additional borrowing is secured against your property and added to your mortgage, increasing your overall balance.
In practice, your new mortgage will repay your existing loan and provide you with access to the additional funds, which are typically released to you as a lump sum. You would then make monthly repayments on the new mortgage, based on the updated balance, interest rate and product terms.
This process can be beneficial as it allows you to unlock funds tied up in your property without having to sell or downsize your home. However, there are key factors to consider and discuss with a professional before you proceed with releasing equity.
How much equity can you release when remortgaging?
The amount of equity you can release when remortgaging will depend on how much equity you have in your property, alongside lender criteria such as Loan-to-Value (LTV) limits and affordability assessments.
How equity and Loan-to-Value (LTV) affect borrowing
Lenders determine how much equity can be released by assessing your Loan-to-Value (LTV), which is the percentage of the property’s value that is being borrowed.
In practice, most lenders will limit borrowing to a maximum LTV (typically up to 95% for residential mortgages), although this figure will vary depending on your personal circumstances and lender criteria.
The role of affordability
While it is possible to build up substantial equity over time, access to that equity is subject to lender criteria and affordability assessments.
These assessments determine how much you can realistically borrow and what you can comfortably afford to repay without straining your finances. Lenders will offer borrowing at levels they consider to be sustainable, even if additional equity exists beyond those limits.
For example:
A homeowner has a property worth £600,000 and an existing mortgage of £200,000. This means they have £400,000 in equity.
Initially, it may seem like a large amount could be released. However, when applying to remortgage the lender will assess your overall affordability to determine what is sustainable.
If the lender determines that the borrower can comfortably afford repayments on a total mortgage of £300,000, this would mean:
- £200,000 is used to repay the existing mortgage.
- Up to £100,000 could potentially be released as cash.
Even though £400,000 of equity exists, the amount that can actually be accessed is limited by what the lender considers to be affordable and sustainable to repay.
Affordability assessments typically take into account:
- Your income and regular expenditure, including existing financial commitments.
- Your credit history and overall financial profile.
- The interest rate being applied and potential future rate changes.
Therefore, taking a considered approach can help ensure that releasing equity supports your wider financial objectives without placing unnecessary strain on your finances.
What are the benefits of releasing equity when remortgaging?
Releasing equity as part of a remortgage can offer a practical way to access additional funds and can form a valuable part of your wider financial strategy.
Some of the key benefits include:
- Access to funds without moving home.
Releasing equity allows you to unlock value tied up in your property while continuing to live in it. This can help you meet financial objectives without the cost, time, and disruption associated with selling your home and relocating.
- Potentially lower borrowing costs.
Because borrowing is secured against your property, mortgage rates are often lower than those available on unsecured lending such as personal loans or credit cards. In some situations, this can make releasing equity a more cost-effective way to raise funds, particularly when compared with short-term or higher-interest borrowing options.
- Flexibility in how funds are used.
Equity released through remortgaging can be used for a wide range of purposes. Common examples include home improvements, supporting loved ones, or consolidating existing borrowing. This flexibility allows homeowners to tailor the use of their funds to their personal needs and circumstances.
- Supporting longer-term financial planning.
When used strategically, releasing equity can help align your mortgage with your broader financial goals. This may include restructuring existing financial commitments, managing cash flow more effectively, or funding plans that enhance your property or lifestyle.
Releasing equity involves taking on additional borrowing, and the overall benefits will depend on your personal circumstances, affordability, and how the lending is structured. Seeking professional advice can help ensure the option you choose supports your short-term and long-term objectives.
What should I consider before releasing equity?
While releasing equity when remortgaging can offer useful benefits, it is important to fully understand the potential long-term implications before proceeding.
The key considerations include:
- An increase to your overall borrowing.
Releasing equity when remortgaging means increasing the size of your mortgage. While this can provide access to additional funds that are otherwise inaccessible, it also results in a higher outstanding balance. This may potentially lead to paying more interest over the full term of the mortgage and higher monthly repayments.
- Changes to your property value.
Property values can go up as well as down. Decreases in property value can be due to a range of factors including a decrease in market demand or economic conditions such as recessions or inflation.
If property prices were to fall, the amount of equity in your home could reduce. This may affect your ability to remortgage, move property, or borrow further in the future.
An ERC is a fee you may incur if you choose to remortgage and exit your current mortgage deal before the term’s agreed end date. ERCs typically range from 1% to 5% of the outstanding mortgage balance and can represent a significant cost.
Understanding whether an ERC applies and how much it could be, is an important consideration if you are thinking of exiting your current deal early to release equity.
Taking the time to carefully assess these factors can help ensure that any decision to release equity remains suitable for your personal circumstances and aligned with your long-term financial goals. Professional advice can also help you weigh the potential benefits against the risks and explore alternative options where appropriate.
How can Cooper Associates Mortgages help?
Releasing equity is a long-term financial decision that should be considered alongside your long-term financial plans to ensure this is the right option for you.
Our specialist advisers offer fee-free, no-obligation consultations where we will take the time to understand your personal circumstances, explain your options clearly, and help ensure you understand what releasing equity may look like for you before you proceed with any decisions.
If you are in the process of remortgaging and are considering releasing equity or would like to learn more about what options are available, get in touch today.
