The media are continuously writing articles on home repossession this has made everyone aware of the need to reduce their debt to the bank.

So people are putting all of their spare money back into their mortgage, in an attempt to increase home equity and therefore reduce their risk of house repossession.

UK home owners have reduced their mortgage debt by 5.7 billion between July and September this year. At the same time last year mortgagees increased their mortgage debt by 11 billion, by borrowing more money against their home. So it is clear to see that this is a massive change in their behavior.

To put the 5.7 billion into perspective this is the largest cash injection into home loans since banking records began in 1970.

Chancellor Alistair Darling has been put in charge of the finances for the government, he is trying to put strategies into place to get consumers spending again to help the UK economy get out of recession. He controversially reduced VAT by 2.5%, to try to encourage people to spend more. We personally think that this was a poor strategy, destined to at best encourage a negligible increase in spending.

On the surface it appears his strategy to stimulate spending has failed. Or will home owners continue to spend all of their spare money on mortgage repayments for the foreseeable future, in an attempt to increase their home equity?

Tax payers money will be used to help first time buyers buy their first home.

Because of the credit crunch there are thousands of new homes that are vacant and the developers are not able to sell these homes unless they give them away at bargain prices. But are they really a bargain? Take a look at prices and some have halved in value, which only shows just how overpriced they were in the first place.

Although a nice new flat or home is great to move into be very aware of the tricks offered by developers. Free carpets, kitchens and other lures look good to most buyers and the advantage of 2 years rental cover or stamp duty paid also help investors over the line but think, look and research hard to see what are the REAL values of these properties? Take a look at the Gumtree.com to check against a wealth of real asking prices in the area, the Gumtree offers an excellent guide to real life rental values. Where does your proposed investment sit between these other offers, be realistic.

Once again be very aware of flats with no land. Land is the key to value as supply of flats with no land can easily be diluted with another 10 storey residential block being built right next door. There is little scarcity in flats with no substantial outdoor space.

Critics say that new initiative may end up backfiring and the very people it is supposed to help and they could end up in negative equity. However the scheme allows you not to pay back the loan if the house drops in value when you sell it. If the house goes up in value you must pay the full loan back.

When the economy was booming it was not uncommon practice for the banks to offer 100% mortgages or more. Now the Home Buy scheme allows people with a household income of less than £60,000 to borrow the deposit from the government. Also the property developer matches the government to make up the deposit.

So first time buyers would receive a 100% mortgage.

It is likely the government will make first time buyers meet strict requirements in order to be eligible for financial assistance.

This scheme sounds too good to be true or is it?

What is home equity?

Your home equity represents the difference between your home’s market value and the debts against it.

Here’s an example of positive home equity.

•    Your home is worth £300,000

•    Your mortgage is £200,000

•    You have a secured loan of £45,000

•    £300,000 market value minus £245,000 cash owing gives you positive home equity of £55,000.

Here’s an example of negative home equity:

•    Your home is worth £300,000

•    Your mortgage is £270,000

•    You have a secured loan of £45,000

•    £300,000 market value minus £315,000 cash owing gives you negative home equity of £15,000.

Obviously, your home equity increases over the years as you pay off your mortgage and property prices rise, as they tend to in the long term.

If you have made any repayments that are larger than usual, or made a few late payments, the balance on your mortgage will be affected. So check that you’ve got your numbers right before calculating the equity in your home.

To calculate home equity accurately, you’ll also need to know the current market value of your home. Get three estate agents round and take the average valuation. Remember you are not obliged to put your home on the market just because the estate agent has given you a valuation! And check local property prices to make sure the agent’s valuation is right for the area.

Free home equity calculators

•    KeyRS.co.uk

•    BBC.co.uk

•    thisismoney.co.uk

If you’re facing repossession and you’ve been in your home for several years, you might have more equity available than you realise. And it might be just what you need to get out of trouble by consolidating your debts.

Home equity loans or ‘secured’ loans

If you own your home and you are a permanent UK resident, you can apply for a home equity or ‘secured’ loan. Equity loans offer low interest rates and long pay back periods. A typical interest rate for a variable secured loan is 8.5%, compared to an unsecured loan interest rate of 16%… almost double.

Obviously your home equity loan is guaranteed by the equity in your home, which is used as security. Because the loan is secured on your home, bear in mind that defaulting on repayments will put you at risk of repossession.

Home equity release schemes for over 55s

Equity release gives immediate access to the equity in your property by giving you a loan against the value of the property. It is paid either as a monthly payment or a lump sum. You stay in your home. You don’t pay the loan off, the debt is settled when you die, or sell the house yourself in order to downsize or fund long term care. Generally, you must be over 55 with at least £40,000 home equity.

Please share your thoughts on Home Equity Loans.