Loan-to-value ratio – The Maximum You Borrow via Equity Release

You may have heard of loan-to-value (LTV) ratios in the context of standard mortgages. It usually refers to the ratio of how much money you can borrow compared to how much you have to offer for the deposit.

This figure reveals the mortgage lender’s perception of how safe it is to lend money to you (1).

With equity release, the LTV ratio is the amount of money that you are entitled to take out of your property, which is determined by various factors.

Most equity release consumers can take out 20-60% of the value of their home through an equity release lifetime mortgage. With a home reversion, as the property is sold to an equity release lender, customers can release 80-100% of the property value.

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What is a Good Equity Release Loan to Value Ratio?

Not everyone needs to release a huge amount from their property, so it is not always wise to look for the best LTV ratio on the market.

However, if you are looking to get as much money as possible out of equity release, you should look for deals that allow you to release a very high percentage of your property value, such as 50-60%.

How Valuable Does My Home Have to Be For Equity Release?

Before even investigating what your LTV ratio could be, make sure your property meets the requirements for equity release. The value of your home must not be below £70,000.

Generally speaking, the more valuable your property, the more money you can release, but several factors are at play, so this is not always the case.

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How Much Money Could I Get With Equity Release?

The amount of money you could get with equity release depends on how expensive your property is, how old you are, where you live, etc.

If someone releases 20% of the value of their home, and another customer releases 60%, the second customer is not necessarily better off. They may live in a much lower value home, which means they are not getting more money out of the equity release scheme.

To find out how much money you could lend based on your personal circumstances, use our equity release calculator for free.

What Affects How Much Money I Can Release?

As we have explained, lots of different factors affect the size of your equity release loan. We have already tackled the issue of property value, but here are some more examples.

1. Type of property

Equity release providers have preferences when it comes to the type of property they are willing to provide loans against.

For example, they are much more likely to accept a freehold property than a leasehold property, and a brick-built or stone-built property than a property that is constructed with any other material.

The reason for this is that they want to get the most money they can out of the property sale, so they opt for houses and apartments that are likely to sell for a large amount of money.

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2. Location of property

You could have a valuable property that is in an extremely undesirable area, where people are unwilling to purchase a home.

Equally, you could have a £70,000 home in a wonderful area with close proximity to good schools, great transport links, and an excellent reputation.

Though property location is not one of the main criteria for equity release, it is something that is taken into consideration by the equity release company when they are calculating your loan.

3. Condition of property

Similar to the location of your home, the condition of your property is not one of the main factors that you hear about, but it can impact your LTV ratio.

No matter how expensive your home is, if it is in terrible condition, equity release companies can refuse to offer you a secured loan, or they may opt to offer a lower percentage of your property value.

4. Customer’s age

Generally, the older you are when you take out equity, the more you can release from your property.

The maximum amount you can take out of your home increases as you get older. This means that 55-year-old equity release consumers tend to get less money from the scheme from much older customers.

5. Customer’s health

Equity release consumers with health conditions can sometimes release larger amounts from their property.

This can either be a direct offer for a better LTV ratio from the lender, or a result of qualifying for a plan with better LTV ratios, such as the enhanced lifetime mortgage.

6. Lender’s criteria

No matter what your individual circumstances are, if your lender is not willing to offer a large loan to you, there is nothing you can do. The lender’s criteria are extremely important when it comes to calculating your LTV ratio.

This is why it’s so important to calculate the amount you can release with different providers, as opposed to researching the criteria of just one equity release lender.

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7. Details of equity release plan

If you choose an equity release product with notoriously bad LTV ratios, you cannot expect to borrow huge amounts of money. We recommend looking into different equity release plans, and how their ratios differ.

For example, buy-to-let lifetime mortgages tend to come with good LTV ratios, but this is because you need the money to purchase a new property.

If you wanted a property for yourself, you would get a worse ratio, but this would not necessarily result in less money, as you wouldn’t need as much funding.

8. Joint vs single applications

Certain equity release companies offer better LTV ratios to people who apply to equity release as an individual, compared people who make a joint application for equity release.

The main reason for this is that when people make a joint lifetime mortgage application, the lender has to wait until both of them have either passed away or gone into long-term care before they can sell their home.

This tends to be a longer wait than it is when someone takes out equity on their own.

However, it is usually recommended to make a joint equity release application if you are in a relationship and you are living together, so it may be worth it to get a slightly worse LTV ratio yet have the security of your partner being able to stay in your home for as long as they want to (as opposed to having to leave when you pass away).

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Can I Get More Money With a Lifetime Mortgage Or a Home Reversion Plan?

Most people would get more money with a lifetime mortgage than a home reversion. This is because when you sell your property to get a home reversion, the lender does not pay you the full market value of the home.

However, overall, you could still end up owing more money with a lifetime mortgage, due to compound interest. The longer you are on the scheme, choosing to not make monthly repayments, the more the interest will build.

That being said, some people do not view lifetime mortgages as being the more expensive option, as they never have to repay the loan amount or the interest (this is achieved through the property sale).

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FAQs About Equity Release Loans

Below, we provide answers to some commonly asked questions about equity release loans:

1. What’s the maximum amount someone can release from their home?

There is no maximum value that you can take out of your home. If you live in an extremely valuable property, and you can release up to 60% of it, the percentage is what limits you – not the amount of money that this equates to.

2. Is there anything I can do to get a higher loan?

We always advise our clients to research all of the different equity release products, as you may find that you qualify for certain benefits on a specific equity release product.

For example, the enhanced lifetime mortgage often allows people with a disability to release more money than they would be able to release on other plans.

You should also find a lender that is willing to offer you a great LTV ratio. For example, if you are 85, some lenders do not lend to this age group, or they offer poor LTV ratios.

If you are this age, keep looking until you find a provider that has no maximum age limit when it comes to the age of their customers.

3. Can I move house in order to release extra money?

Yes, you can move house before releasing equity, if you believe you would get a better LTV ratio in a different house.

However, you would have to move to a higher value home, and most people who are interested in equity release cannot afford to live in a home that is more expensive than their current property.

What’s more, moving house is not free, so you would lose money in the house moving process that could be put towards your retirement savings.

You should only consider this route if you already want to move house, as the better LTV ratio would be a bonus — as opposed to the main purpose — of moving.

4. Is it wise to release as much money as possible?

We cannot speak to your specific situation without knowing what you are planning on spending your loan on, and whether you have any other money to help you through retirement.

Generally, if you are in a desperate situation and you need as much money as you can get, and as quickly as you can get it, it would be wise to take out the highest percentage of your property value that is allowed by the lender.

Even if you end up owing a huge amount of compound interest, it does not have to be repaid, so you would still be better off than you currently are.

However, if you need the equity release money for one thing, and it isn’t expensive enough to require you to get the full loan, you may decide to release a smaller amount of money.

This would reduce the amount of debt you are in, which could benefit your family later down the line. There is also often an option to release more money at a later date, so it is better to do it this way around than to release too much and regret it.

Please call our 24-Hour Helpline: 0330 058 1579

5. Can I access more money if I already have an equity release loan?

Not all equity release lenders will loan more money once you have already received your loan. However, it is usually possible to do this by simply requesting more funds from the lender.

One option for getting more money is switching to a different equity release plan with a better LTV ratio.

Often, you can do this with the same equity release company, and you can stay in the same property. Another option is to release more money on the same plan, but you can only do this if you did not initially take out the maximum loan.

Please keep in mind that there are downsides to re-releasing equity for a better LTV ratio. You sometimes have to pay fees to do this, which can be frustrating when you have already paid the initial equity release fees.

It can also have a knock-on effect on your inheritance, so make sure you get inheritance protection if you want to keep some money for your beneficiaries.

On the other hand, re-releasing equity can be a great way to get a better LTV ratio; it allows you to enjoy another side to equity release, it can lead to better interest rates, and it means you can get more money for retirement without having to quit equity release (which is often costly due to repayment charges).

If you have not already released equity, and you are unsure how much you will need, you could get a drawdown lifetime mortgage. With this type of equity release, you can take out as much money as you want.

If you want a small lump sum to begin with, and then you realise you want to borrow more, you can easily do this by withdrawing from the cash reserve.

This saves you from having to pay fees to re-release equity, and it is great for interest, as interest is not charged on the funds that stay untouched.

Please call our 24-Hour Helpline: 0330 058 1579

Learn More About LTV Ratios

We would love to talk more about how to get a good LTV ratio with equity release. We are experts in this scheme, so we know all about the best equity release plans and the best equity release lenders that are currently out there.

We can also tell you which aspects of equity release you should avoid, depending on your circumstances.

For example, if you do not have a disability, and you are young, it is almost always advisable to stay away from the enhanced lifetime mortgage.

For more wise suggestions like this, contact us here to request a call back, or call us on 0330 058 1579. On this same page, you can also get a free brochure that tells you more about the equity release scheme.

References

[1] Understanding Loan-to-Value Ratio (LTV) https://www.experian.com/blogs/ask-experian/what-is-loan-to-value-ratio-and-why-is-it-important/