There are many reasons to take out an equity release. It’s an excellent way for you to get the money you need without putting in too much effort.
Are you wondering whether or not you’ll be asked for your credit score before being given access to this type of loan? In this article, we’re going to talk about credit check when applying for equity release and what factors affect your eligibility for it.
Why Do Equity Release Lenders Perform Credit Checks?
A credit score1 is a numerical representation of the likelihood that an individual will repay their debts. Lenders often use these scores as one way to determine whether or not someone should get access to loans and other forms of financial products.
When it comes to equity release, many different factors can affect your eligibility.
One aspect which plays into this decision-making process is whether or not you currently have a mortgage on your home and, if so, what type it is (i.e., fixed-rate vs. variable).
Another factor would be how much money you owe in outstanding debt, including any personal loan balances and student loans owed. These might affect your credit history2 depending upon who issued them and when they were taken out.
Title Deeds Check
A factor that lenders will consider when assessing your eligibility for equity release is whether or not you own the residence with the mortgage on it (i.e., whether or not this house was gifted to them by another family member).
Homeowners must also provide their title deed which is checked against records at HM Land Registry3 to verify ownership of the property.
Credit Check on Any Unsecured Debts
One of the final things that a lender will do is perform a credit check4 to see if there are any other forms of unsecured debt they might need to consider before approving equity release.
If your outstanding debts, such as credit cards and student loans aren’t secured, then equity release might not be suitable for you.
Even though lenders want people who have good histories with managing their money responsibly, they’re aware that these days everyone has had some financial hardship at one point or another due to unexpected life events like job loss or medical bills.
This means that even someone who may have fallen behind on payments could still qualify for equity release so long as they have a good payment history in the recent past.
When Is an Equity Release Credit Check Performed?
An equity release credit check is performed at the time when you apply for this loan. When submitting your application, you will be asked to provide a snapshot of your financial situation so that lenders can assess whether or not they want to offer you equity release loans in exchange for some security on the property.
A credit check is performed every time you apply for equity release loans. Suppose you’ve previously been approved, the lender will still need to review your application before agreeing on it. This is done to ensure that there’ve been no changes that would affect your eligibility.
If a person owns their residence outright (i.e., without any mortgage on the property) or if this house was gifted to them by another family member who doesn’t want anything back from them as collateral, then typically lenders don’t require a credit history because these individuals are considered low-risk borrowers with a high likelihood of repaying their debts.
What Happens if I Have a Bad Credit History?
Another consideration when deciding whether or not equity release is suitable for you would be your credit history. If this isn’t stellar, then it’s possible that lenders won’t want to offer approval because they need a certain level of assurance before lending out money.
Suppose someone has poor credit due to circumstances outside their control, such as job loss and medical bills. In that case, some options can help them get back on track with good credit so long as they have a steady income again – even if only part-time – and show evidence that payments will be made on time in the future.
Suppose you have a poor credit history but are looking to establish good credit. In that case, this is one way that an equity release loan can be helpful because the payments will not only help offset any existing debt but also provide evidence of on-time payment habits.
This may improve your chances of being approved at some point in the future when applying with different lenders.
What Happens if I Have No Credit Score?
In some cases, people might not have a credit score because they’ve never carried any debt. This would be the case for someone who has used cash to buy the property or if the person is donating their home in exchange for equity release.
In these instances, you must provide evidence about your income source and account balances along with how long you’ve been working at each place. This is done so lenders can assess whether or not there are sufficient funds available to repay what will inevitably need to be sizeable loans.
It also doesn’t help when individuals don’t apply for lines of credit but only use debit cards which typically don’t get reported by financial institutions like banks and brokers typically do.
The other possibility is that someone might have had an account with their credit card company, but all of the debt has been paid off. This means there’s no longer any risk associated with this person, and lenders may be more inclined to offer them equity release loans without requiring collateral because they’re considered low-risk borrowers.
Is It a Requirement for Equity Release to Have a Credit Check?
No. It is not mandatory, but you will need one if you are looking at taking out secured loans or applying for this type of mortgage in the future.
The decision depends on your circumstances and what types of financial products you want to apply for in the future.
How Long Does It Take for a Credit Check to Be Processed?
On average, a credit check takes about 24 hours. Sometimes it can take up to 72 hours if the bank needs more information or an issue with your account.
What Happens if I Refuse a Credit Check?
If you refuse to have a credit check, the lender can still offer you an equity release mortgage that doesn’t require one.
But these mortgages may not be as competitively priced, and there are some restrictions on them.
What if I Have a Black Mark on My Credit Report?
You will need to discuss this with your lender. Some lenders allow you to release equity in the property without taking out a mortgage or using an advance from your pension fund. Still, these types of products may come at a higher cost than conventional mortgages.
Equity release credit checks are a necessary part of the process to make sure you’re not being taken advantage of by predatory lenders. The equity in your home is yours, and you deserve to be compensated for it if you need to borrow against it.
Make sure that when considering an equity release, you do everything possible to protect yourself from scams or unfair pricing.