Explaining the HELOC for the British Financial Market

The HELOC is a great way for homeowners to unlock equity without taking out multiple loans to finish projects.

The HELOC – that’s Home Equity Line of Credit – has been on US and Canadian economist’s minds for years already. However, it has only recently arrived in the UK. With UK homeowners now eligible for this alternative source of finance, we thought it high time we reviewed what a HELOC is, what it is used for, and what it can do for you.

The HELOC Explained

The Home Equity Line of Credit is a great way to tap into the balance between your property’s value and the amount of the mortgage that has been repaid. This equity can be freed up to act as a personal loan. You borrow the money using the HELOC system, and you have instant access to the total amount of freed up equity in your home. So, if you have paid 80% of a mortgage of £100,000, you can access £80k using this method. Your home acts as your line of credit.

Using this technique, you have access to up to this amount, but you will only pay interest on the amount you borrow. There is normally a one-off product fee, and then the loan is repaid. The idea is that this cash pool lets you borrow up to that full amount, as often as you like. So, say you are buying a new kitchen and you run into unforeseen building issues, the HELOC means you can use the money there and then, without having to take out a second loan.

The HELOC has been brought into the UK by the company Selina Advance. You can read more about how it all works over on their pages.

Why Might You Need HELOCs to Unlock Finance?

There are lots of reasons. It can act as an alternative to a regular loan, provided you are a homeowner. It might act as an alternative to a home equity release scheme[i], to allow you to enjoy your old age. People use their HELOC for many reasons. Here are some popular causes:

  • To consolidate existing loans, a HELOC would allow you to pay off multiple debtors, so you have one creditor to repay each month.
  • To pay off school tuition fees if your children go to private schools.
  • HELOCs are used to fund big purchases like new cars or weddings.
  • For home refurbishment and construction projects likely to overrun their budget.

And for countless other reasons. The important thing to remember is that you are borrowing against your house, so you need to be a homeowner to be eligible. This type of finance uses your house as equity, so if you don’t make your repayments, you could lose it.

How Much Equity can a HELOC Unlock?

A HELOC can unlock up to 80% of your property’s total value, provided you have repaid that much of your mortgage. To work out how much a HELOC in the UK will unlock in your property, take the overall value, and divide this by 80%. Next, take away the amount you owe on the mortgage, and this should give you a rough total.

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