Half a million mortgage holders raid homes to release cash
A third of homeowners (32%) who have remortgaged in the last five years have done so to release equity from their property – borrowing £43,918 on average
Over half used the cash to pay for home improvements (55%), a third to consolidate existing debts (37%) and a fifth to financially support children or parents (21%)
Three in five (60%) believe it is the cheapest way to borrow money as interest rates on mortgages are currently low
While borrowing over a longer period usually works out more expensive nearly half of homeowners (48%) are happy to extend their mortgage term to accommodate it
uswitch.com warns homeowners to consider the long term costs of borrowing against their home before extending their mortgage.
In the last five years half a million homeowners have used their home as a piggy bank and remortgaged to release much needed cash, taking out on average £43,918. That’s according to new research from Uswitch.com, the price comparison and switching service.
Over half (55%) of homeowners are using the cash to fund home improvements and a third (37%) are consolidating debts and paying off credit cards. Another fifth (21%) say they are dipping into their homes to financially support their family, paying for childcare, care home costs and university fees.
Two fifths (40%) are choosing this form of borrowing so that they can spread the cost of the loan over a longer period of time and help keep their monthly repayments affordable. With mortgage rates dipping as low as 0.99% in recent years, three in five homeowners (60%) erroneously believe this is the cheapest form of borrowing .
Yet despite two thirds of homeowners seeing equity release as a cheap way to borrow money, it could actually cost homeowners more in interest than taking out a shorter loan. For example, borrowing £20,000 at 3% APR would incur £1,562 in interest over five years but a staggering £4,858 if you were to add it to a mortgage on a similar interest rate with 15 years left to run.
Even though borrowing over a longer period costs more in interest over the life of the loan, the research reveals almost half of homeowners (48%) are extending their mortgage term to accommodate it. Homeowners dipping into their property seems unlikely to go away any time soon with two fifths (42%) saying they are likely to release equity in the next two years.
For two thirds (66%) of homeowners this means their monthly mortgage repayments increase on average by 24% – equating to £179 per month on the typical UK mortgage. In London, where monthly mortgage repayments are an estimated £3,377, this would add an extra £810 each month.
Thomas Lyon, money expert at Uswitch.com, says: “Large numbers of people are using their homes as piggy banks, but many may not understand the implications of doing so. While record low interest rates on mortgages may be enticing, taking longer to pay off the debt will cost you more in the long run.
“It’s important consumers understand the difference between taking out a loan and extending your mortgage. It is worth assessing all your options – low interest rates across many types of borrowing mean that it is worth exploring the most cost effective route before making any decisions.
“As with all forms of credit, you should also make sure you can cope with the monthly repayments set out by the lender. If you find yourself falling behind, speak to your provider or seek help from a debt charity like StepChange.”
Find out how you could save over £1,000 a year with Uswitch here.
FOR MORE INFORMATION
Rory Stoves
Phone: 020 3872 5613
Email: rory.stoves@uswitch.com
Twitter: @UswitchPR
Notes to editors
Research referred to in the release was conducted online by Opinium from 16th to 21st March 2017 1,000 UK homeowners who have re-mortgaged a property in the last 5 years.
When asked, “What were the main reasons you remortgaged your home?”, 32% said “I wanted to raise money / borrow against my mortgage e.g. to use for home improvements” or “I wanted to release equity / cash from my home”. CML data reveals 1,664,800 people have remortgaged in the last five years (since 2012). 32% of 1,664,800 = 532,736
When asked “How much cash / equity did you release from your property when you remortgaged?”, the average answer was £43,917.95.
When asked “What did you use the / want to use the money you released from your property to do?”, 55% said “Home improvements”, 19% said “Consolidate existing debts”, 18% said “Pay off credit card debt” (19+18 = 37%), 8% said “Care home costs for parents / medical bills”, 7% said “School and / or university fees” and 6% said “Childcare costs” – 8+7+6 = 21%.
When asked “What did you find most attractive about releasing cash from your home / borrow against your mortgage?”, 60% said “I thought it would the cheapest way to borrow money because of the low interest rates available on mortgages”.
When asked “When you remortgaged to release cash / equity from your home, did you extend the terms of the loan – i.e. push back the date when the mortgage will be settled?”, 48% said “Yes – I extended the mortgage term”
When asked, “What did you find most attractive about releasing cash from your home / borrow against your mortgage?”, 40% said “I was looking to spread the loan over a number of years to make the monthly payments more affordable”
com Correct as at 4th April 2017
Consumers taking out a personal loan for £20,000 with an interest of 3% over a five year period, would incur interest of £1,562.46.
A £150,000 mortgage on 3% interest with 15 years left to run, incurs interest of £36,437 compared to £31,579 in interest on a £130,000 mortgage on 3% interest with 15 years left to run. £36,437 - £31,579 = £4,858.
When asked “How likely are you to re-mortgage a property in the next two years to release equity / cash?”, 42% said ‘Likely’.
When asked “After re-mortgaging your home to release equity / cash, what happened to your monthly mortgage payments?”, 66% said “They increased”. On average, respondents stated their payments increased by 24%.
Zoopla, April 2016. The average UK monthly mortgage payment is £749. An increase of 24% on £749 = £928.76, a difference of £179. The average monthly London mortgage payment is £3,377. An increase of 24% on £3,377 = £4187.48, a difference of £810.48.
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