Equity Release on a New Build Property
According to statistics found by the NHBC, there are now more new build properties being built across the UK than ever before.
In fact, in 2024, there were 104,232 new homes registered with the NHBC in just one year, with another 105,071 being built in 2023 [1].
Of these house completions on new build properties, 45,824 of them were deemed as affordable housing or a rental. This is the second highest ever number of affordable houses [1].
Given that there are more newly built homes than ever, this might increase the number of people looking to release equity on a new build home.
This is why it is important for both the wider public and for those working in the industry to understand the complexities that surround equity release on a new build property.
Equity release recapped
Remember, equity release is only designed for those aged 55 or over who own their own home and only have a small mortgage left to repay.
You do not have to repay the loan until after you pass away or move into a care home, upon which your home will be sold and the money will be used to pay off the loan in full [2].
You are charged interest, but this is fixed and it will compound, meaning that your overall loan amount will increase year on year.
You should be confident that your home will increase in value, as the proceeds from the sale should pay off the loan, plus any interest, in full. If it does not, then your money and next of kin(s) will be protected by the no negative equity guarantee.
This guarantee ensures that your lender will step in to pay the difference if the proceeds from the sale of the home fails to cover the loan in full.
You are free to spend the equity release loan on whatever you want, including home renovations, a second home, or you can always give it away to loved ones and grandchildren.
Lifetime mortgages and new build properties: the basics explained
Yes, technically you are able to release equity on a new build home, as long as you are aged 55 or over and have pay off the majority of the mortgage, meaning that you only had to take out a small mortgage on your new build property as you were able to purchase most of the home in cash.
You must always check with your lender and equity release adviser to ensure that your new build home is eligible. This should include looking into what type of materials your new build home has been made out of, as many new builds are constructed out of modern materials such as concrete or steel. Equity release is only eligible on properties made out of traditional materials.
Likewise, many new build properties are leasehold properties, meaning that you do not own the land that the house is built on and therefore might not be eligible for equity release.
Many new build properties and estates include a service charge for maintenance to the surrounding area, including any shared or communal spaces.
Most people have to pay an annual maintenance fee to the property developer, which could create some sticking points when it comes to the value of the home.
Likewise, the valuation process will differ on a new build property if your property was built off plan and is still not finished.
The property valuer and surveyor would inspect the entire site and make an informed valuation based on the build potential and a re-inspection would need to take place once the property has been fully constructed and completed. This would include it being signed off by the NHBC.
Why Consider Equity Release on a New Build?
People consider taking out an equity release loan on a new build property for a number of different reasons, and the number of people interested in equity release who live in a new build is set to rise over the coming years.
1. Downsizing Later in Life
Lots of people who live in a new build want to downsize from a larger family home into a smaller, more manageable new build home. This is better for maintenance and even energy efficiency, which could help you to save on bills, too.
However, new builds are more expensive to buy than the average home, which is why lots of people who move into new builds, especially those close to retirement, are looking for many ways to get their hands on some cash.
2. Desire for Modern Living
New builds certainly offer a different and more modern way of life. They’re often built with state of the art insulation and more and more new build properties are being built with modern technology built in, such as smart home features.
Retirees living this way might also then want to invest in other modern day appliances such as a new car, maybe even an electric one.
With all their cash tied up in their property, releasing equity from their home could allow them to live in a more modern and even eco-friendly home if they choose to spend their money wisely.
3. Inheritance Planning
Likewise, if you are aged 55 or over and have the majority of your cash and savings tied up in a new build property, then you might want to consider releasing equity from your home to allow you to plan your inheritance [3].
Releasing equity from your home allows you to access wealth during your retirement, whilst also allowing you to reduce the value of your home and estate for inheritance tax purposes.
This is a great strategy for those considering how best to plan for their inheritance and passing.
Key considerations when releasing equity from a new build property
If you are considering releasing equity on your new build property, then there are a number of things that you should carefully consider before doing so:
- Always provide a copy of the NHBC Buildmark certificate and warranty that you were given when you first moved into the new build property. Your equity release lender will most likely ask to see it before they can approve you for equity release.
- You should always ask your equity release adviser to check what materials your home is made out of. The new build might just be standard bricks and mortar, or it might be made out of non-standard and non-traditional materials in which case it might not be deemed eligible for equity release in the first place.
- Always make your equity release adviser aware of any management fees or leasehold service charges that you have to pay on a monthly or annual basis.
- Remember, you have to be aged 55 or over in order to qualify for equity release in the first place. You have to have already paid off the majority of your pre-existing equity release loan and your new build property must be worth at least £70,000 or more in order to qualify for equity release.
Steps to Take Before Releasing Equity on a New Build
If you are considering releasing equity on your new build property, then there are a number of things that you should consider, and a number of steps that you should follow.
These steps are included below for you:
1. Seek Independent Financial Advice
The first thing that you should do when considering equity release is to speak to a qualified equity release adviser about your plan.
You should look for a list of local equity release advisers on the Financial Conduct Authority, as they have a list of advisers who are fully qualified and regulated by the Equity Release Council.
2. Shop around for different Lenders
A good equity release adviser, like the ones at Equity Release Warehouse will be able to shop around different lenders for you in order to find the best product and deal for you.
Each lender has different types of products and equity release loans, as well as different interest rates.
You might not be eligible for all equity release lenders, which is why it is important to be as open and honest with your adviser as possible, so that they have all the facts in order to recommend the best lenders for you and your circumstances.
3. Discuss with Family
The next step is incredibly important. As opting for an equity release loan means that your loved ones might get less inheritance than they might have hoped, you will be encouraged to sit down with them to discuss the ins and outs of equity release and what this might mean for them and their inheritance [3].
4. Engage a solicitor
You should opt for a solicitor who has experience in all things equity release and who comes highly recommended.
They will work closely with your equity release adviser and your chosen lender to ensure that all of the contracts, agreements, illustrations and paperwork is drawn up and signed.
Once everything is in place, they will be the ones to move the equity release funds into your account on behalf of the lender.
Speak to Equity Release Warehouse
If you have recently bought a new build property but want more access to cash and are aged 55 or over, then speak to a member of the team at Equity Release Warehouse.
Our team of specialist advisers are on hand to provide you with the very best information so that you can make an informed decision that is right for you.
We will never put any pressure on you to release equity from your home, but we will provide you with all of the facts, including the pros and cons associated with equity release.
Our free equity release calculator will also enable you to work out exactly how much you might be able to release from your home. Start your equity release journey today by calling us for free on 0330 058 1579 or by visiting us online by searching for www.equityreleasewarehouse.com.
References
[2] https://www.equityreleasecouncil.com/what-is-equity-release/
[3] https://www.equityreleasecouncil.com/what-is-equity-release/faqs/impact-on-other-people/
