Many people interested in equity release utilise the online and a free equity release calculator to determine what their maximum drawdown facility is. However, these calculations are based on the information you provide and are pre-programmed to calculate a set formula. The calculators have no facility to check the current market value of your home. So what happens when you proceed with your application and find that your property value is not what you quite expected?
The Equity Release Process
Equity release schemes are similar to conventional repayment mortgages, in that there is a certain loan to value ratio which must be adhered to. Just as an application for a conventional mortgage would require a property survey to confirm the market value of the property, so too does any equity release application.
As soon as your application is received by your equity release lender, they will contact your solicitor to arrange a property survey. This will be conducted by a property surveyor, who will produce a report detailing whether the house is in a good condition, if there are any structural issues which may compromise the property and an estimation of the current market value. This will be determined by assessing the properties which are similar to yours which have been sold recently and by calculating the square footage of your home and times it by an appropriate price to determine the property value. Providing the survey confirms your property value as expected, the application can proceed as planned. However, if the valuation is up or down on what you anticipated, you will need to revisit your equity release calculations.
The Impact of a Down Valuation
All equity release schemes are based on a certain percentage of loan to property value. If your valuation comes in lower than you anticipated, you will need to revisit your equity release calculator figures. This will affect your maximum drawdown facility and you will need to ensure that you still qualify for equity release. This will be further complicated if you have an existing mortgage on the property, since the balance of the existing mortgage will need to be deducted from the value of the property to determine the available equity. Should your property be down valued, you will need to assess your calculations with your equity release adviser or broker to determine if this scheme still represents the best possible deal for your new circumstances.
Your broker or adviser will revisit the calculations and check whether equity release is still feasible. Once this has been confirmed they will advise you of the new maximum drawdown facility which would be available. You will then need to take the time to properly consider whether this reduced sum is still sufficient for your needs and plans. If it is, the application can proceed with the new figures but if it is not, you will need to reassess your options to find a possible alternative.
Options on a Down Valuation
Upon a down valuation, your adviser will revisit the equity release calculations. There are then a number of options which your equity release adviser will discuss with you in the event of a down valuation. These can include:
• Proceeding with the application with a lower maximum drawdown facility
• Using equity release calculators to assess whether or not other schemes or plans may now be the option which is better suited to your lower home value
• Postponing the application until you have reached another age group, which would allow a greater percentage of equity release? For example, if you are currently sixty-four years old, it may be beneficial to postpone equity release until you reach the age of sixty-five, when other schemes such as home reversion plans would now be accessible, or lifetime mortgages would offer a higher percentage of release as a maximum drawdown facility.
Your adviser will be able to guide you through these options to ensure that you make the decision which is best suited to your needs and requirements. They will check the equity release calculators with the new valuation figures to ensure that you have the most up to date information on which to base your next decision.
If you are currently applying for equity release, it is important to understand that any maximum drawdown facility figures provided from equity release calculators are subject to the property valuation report. In the event of a down valuation, you will need to revisit your calculations and assess the situation again. This can seem like the whole application has gone pear shaped, but by working with your adviser, you can be assured that you will still be presented with the deals which are best suited to your new circumstances.
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