Are you wanting to release equity from your home but fear that you might be rejected because of bad credit records?
The great news is that this might not matter!
If you are over 55, cash strapped, but own your house, equity release might be the perfect way for you to live a stress-free retirement, even if you have a bad credit record.
How Does Bad Credit Affect Equity Release?
However, there might be some lenders who do, and this could limit which lenders and plans you can use to release equity.
What Can You Do?
You will need to speak to your financial adviser to help find a plan that allows you to use their services despite having a bad credit rating2.
You can also improve your credit rating by paying off old debts that are negatively affecting it, or you could get a secured card with small limits for monthly expenses like utilities.
By paying off old debts, you can keep your accounts in good standing while demonstrating responsible use of debt and a prompt payoff.
Finally, you can use the equity released to pay off your debts, as interest rates might be competitive, and the loan, plus interest, is only paid back when you die or move into permanent care.
Can You Get Equity Release if You Have Arrears?
Some lenders will allow you to release equity in your property if you have arrears3. The lender will not lend for the full amount, but they may be willing to offer a smaller loan like £25,000 or less to cover some of the retirement income needs and health care costs.
It’s important to go over all your options before making any final decisions about how much money you want to borrow.
Take the time to research all your options for equity release, and you will find that there are plenty of lenders out there willing to offer a solution even if you have bad credit.
Can You Get Equity Release With a CCJ?
It’s possible to get an equity release with a CCJ4. If you have bad credit, but your credit is not so terrible that lenders won’t allow the transaction at all, then it’s worth trying.
If you don’t qualify for any other types of loans or want some peace of mind about what happens should you die before paying off the debt completely, then getting an equity release with a CCJ may be one way to go.
What Is a CCJ?
CCJ stands for County Court Judgement. This is a court order issued when you don’t pay back money owed to someone else, and this will show up on your credit report as soon as the judgment passes.
The CCJ can be discharged if obtained legally, but getting equity release with it may not always work because lenders see these types of judgments. However, some financial institutions are willing to lend against them in certain circumstances.
Can You Get Equity Release if You’re In an IVA?
Some companies don’t allow equity release, while others don’t have any restrictions on what you can use to secure a loan.
If you are in an IVA, it’s worth exploring with your insolvency practitioner what kind of equity release options might be available for you because they will have more than just one lender. Not all companies offer this service, but they should know which do.
What Is IVA?
IVA stands for Individual Voluntary Arrangement. It’s a legally binding agreement between an individual and their creditors that establishes how much the creditor will get paid back concerning all outstanding debts with other lenders.
An IVA allows you to pay off your debt, but it can take up to five years before this happens – or more if there are arrears on top of what you need to repay.
Can You Get Equity Release if You Have a Charging Order?
You may be able to get equity release with a Charging Order7. This is an order from the court which states that you must hand over your property when it comes time for you to sell – but this will show up on your credit report8, and lenders won’t want anything to do with someone who has a charging order against them.
But if you can find a lender willing to lend against something where there’s no way of knowing whether they’ll have access or not, then getting equity release with a charging order might be possible.
What Is a Charging Order?
A Charging Order tells the borrower that they cannot move assets without first paying off their debt.
This is a charge on specific assets, and it will show up on your credit report for as long as you have debts.
How Bankruptcy Affects an Equity Release Plan
If you need an equity release plan, it’s important to understand how bankruptcy9 may affect your ability to receive this financial assistance.
If you file for bankruptcy and have a secured mortgage on your home or other property, the court can put a stay order on any equity release plans until your bankruptcy case has been finalised.
Once all debts have been settled, you can receive an equity release plan if there are still funds available.
The key to successfully receiving a home equity release is understanding the different forms of bankruptcy that exist and how they may affect your ability to get the funds necessary for retirement or other expenses. The forms of bankruptcy:
- Chapter 11:
The court will place a four-year stay of execution against all property, during which time you are allowed to borrow money up to 60% of what is left after repayment plans have been settled for their debts (excluding secured mortgages).
- Chapter 12:
If you decide that farming is your chosen profession for the foreseeable future, Chapter 12 may be a good option. In this type of bankruptcy protection, all payments owed are considered secured debts and can’t be discharged once they have been repaid.
- Chapter 13:
In this type of bankruptcy, there is no automatic stay – it’s at the discretion of the judge presiding over your case. This means that if you want an equity release plan or other debt relief option, then you need to request one from the courts before filing for this form of bankruptcy protection.
To get an equity release plan, you need to file for either Chapter 11 or Chapter 13 bankruptcy protection.
3 Ways to Improve Your Credit Rating for Future Transactions
If your credit score is less than perfect, there are steps you can take to improve it. Here are 3 ways you can improve your credit rating:
- One of the most effective ways to raise a low credit rating is by paying bills on time and not spending more money than what you have in your bank account before making payments.
- Another way to fix this dilemma is by disputing any errors on your report with each provider so that they will be removed from your record (you may need legal help).
- The last option for raising an uncertain credit score includes talking with creditors about lowering interest rates or negotiating payment plans, potentially lowering monthly debt installments.
A few simple tips such as these should help get a good job done when addressing bad credit ratings.
What Is Credit Rating Considered Bad?
A credit score of 500 or less is considered a bad credit rating, but this figure changes with the lender.
Why Does My Credit Rating Matter When I Want Equity Release?
The lower your credit score is, the more difficult it will be to get a high enough offer from an equity release company.
Which Equity Release Providers Accept Bad Credit?
Providers such as Lifeshare, Family Home Solutions, and Lifestyle Release offer equity release for people with bad credit.
How Do I Find the Right Lender for Me?
It is important to find the right lender for your individual needs. You can talk with a single provider or get quotes from all of them to see what best suits you.
Suppose you’re looking for a way to release equity from your home before retirement but don’t have good credit and can’t get traditional financing options.
In that case, there are some other avenues available. Some equity release lenders won’t even do a credit check as you don’t pay back the loan in your lifetime.
But, as with anything involving money and finance, it pays to do your research because these products come with their own set of risks. It’s important to understand how they work to make an informed decision about which option might be best for you – especially if this will be one of the largest financial decisions in your life thus far.
The first step is to contact your financial adviser to get the best equity release advice.