What happens if house prices change after taking equity release?

How house price fluctuations can affect your plan.

House prices naturally go up and down over time, but what does that mean if you’ve already taken equity release – or you’re thinking about it? 

If you’re thinking about equity release, it’s natural to wonder what might happen if house prices change after you’ve taken out a plan.

Will rising property values benefit you? What if prices fall? And could it affect your loan?

The good news is that changes in the housing market don’t usually have an immediate impact on your existing lifetime mortgage. However, they can make a difference to how much equity you have left in your home and whether you may be able to release more money in the future.

What’s been happening to UK house prices?

House prices have remained relatively steady over the past year, according to the latest Halifax House Price Index. While there have been small monthly ups and downs, average prices have stayed close to the £300,000 mark throughout the period. The typical property now costs £298,806, which is 0.5% more than a year ago.

The table below lays out how average house prices have been changing across the UK over the last year.

Commenting on the latest figures, Amanda Bryden, Head of Mortgages at Halifax, said:

“Property price trends continue to reflect the uncertainty linked to developments in the Middle East. Looking ahead, borrowing costs and consumer confidence are likely to continue shaping activity in the coming months, with house prices expected to remain broadly stable while interest rates stay elevated.”

Although no one can predict exactly what will happen next, the figures suggest that the UK housing market has remained resilient despite economic uncertainty.

Does a change in house prices affect your equity release?

Once you’ve taken out a lifetime mortgage, changes in your property’s value won’t change the amount you’ve already borrowed.

Your loan will continue on the terms you originally agreed, regardless of whether your home’s value rises or falls. However, changes in house prices can affect:

• How much equity remains in your property.
• Whether you may be able to release more money in the future.
• How much may be left for your beneficiaries when your home is eventually sold.

What if house prices start rising again?

If your home’s value increases after you’ve taken equity release, it could create additional equity that wasn’t available when you first took out your plan.

Depending on your circumstances and your lender’s criteria, you may be able to apply to release more money from your home later on. This is sometimes known as a further advance.

For example, imagine you released £75,000 from a home worth £300,000. If your property later increases in value to £350,000, you may have more available equity than before.

Whether you can borrow more will depend on several factors, including:

• Your property’s current value.
• Your age at the time of the further application.
• The amount you’ve already borrowed.
• The lender’s criteria at the time.

It’s worth remembering that every application is assessed individually, so additional borrowing isn’t guaranteed.

What if house prices were to fall?

Falling house prices can sound worrying, but modern equity release plans include important protections.

All lifetime mortgages approved by the Equity Release Council as compliant with their product standards come with a no negative equity guarantee.

This means that when your home is eventually sold after you pass away or move into permanent long-term care, neither you nor your estate will ever have to repay more than the sale proceeds of your property.

Even if house prices were to fall significantly and your loan plus rolled-up interest became greater than your home’s value, the guarantee means the remaining debt would be written off. Your family would not be responsible for making up the difference.

This protection gives many homeowners valuable peace of mind, regardless of what happens in the housing market.

Could rising house prices leave more inheritance?

Possibly. If your property’s value grows by more than your equity release loan and the interest added over time, there may still be a substantial amount of equity remaining for your beneficiaries.

Many modern lifetime mortgages also offer features such as inheritance protection, allowing you to ring-fence a percentage of your home’s value for your loved ones if leaving an inheritance is important to you.

Should house prices affect your decision?

While it’s always interesting to keep an eye on the property market, trying to predict future house prices shouldn’t usually be the deciding factor when considering equity release.

The most important questions are:

• Do you need to access money from your home?
• Will equity release help you achieve your financial goals?
• Have you considered the alternatives available?

An adviser can explain your options and help you understand how equity release could affect your finances both now and in the future.

The important thing to remember

House prices naturally rise and fall over time, but once you’ve taken out a lifetime mortgage, short-term movements in the housing market won’t impact your existing loan.

If prices increase, you may be able to release more equity later, subject to eligibility. If prices fall, the no negative equity guarantee protects you and your family from ever owing more than your home is worth.

The key is to choose a plan that’s right for your circumstances, rather than trying to time the property market.

To find out how much you might be able to release, use our instant-result equity release calculator, or call us to arrange tailored quotations from the UK’s leading providers. Our selected advisers will also help you assess the suitability of equity release and the different options available. Call us on 0808 178 3055 or request a call back and we’ll arrange an appointment for you.