A guide to the equity release rules all homeowners should know

To qualify for a home equity release scheme, you must meet specific criteria. We’ve set out the basic criteria to help you decide if you’ll be eligible.

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Do You Qualify?

You’re probably thinking that…

There’s too much information to take in when it comes to figuring out what is equity release.

Luckily for you, this comprehensive guide will help you find exactly what you’re looking for. We’ll ensure you get to know what is required of you when taking out an equity release product, and if you qualify for one, where to find the best providers.

Are You Considering Equity Release?

The Qualification Criteria

Equity Release is a way for you to get a lump of cash by unlocking the value of your property once you reach the age of 55. This can be done via a number of plans that let you access, or “release”, the equity (cash) that’s tied up in your home.

Although equity release can be used to repay existing debts this may end up costing you more. This is a direct result of the long-term nature of equity release plans and the compound interest you’ll be charged.

So, are you eligible to release home equity?

If you’re property rich and over 55, you may be eligible for an equity release scheme and be able to enjoy the host of benefits it can offer you.

However, lenders will require you to fulfil certain criteria, take expert advice, and provide information and supporting documentation before submitting your application.

Once you’ve gone through the advisory process, equity release providers will evaluate your application to establish your eligibility for equity release.

So, here are your two options:

The most usual form is a lifetime mortgage that allows you to release a set percentage of equity (usually up to 60%). So if you have no one to leave your assets to, it’s a decent (though expensive), way to raise cash.

With a home reversion scheme you trade some (or all), of your home to a provider in return for a single lump sum or a smaller lump sum followed by regular payments from a cash reserve.

#1. The Property Criteria

Most equity release companies require the value of your home to be at least £70,000. Theoretically, there’s no maximum equity release amount, but, some set theirs to a certain value to reduce the risk involved.

The condition of your property is something that lenders will take seriously. You’re expected to have your home in pristine condition and properly maintained. If you have clutter or need repairs done, it’s best that you get these sorted before the property valuation takes place.

You may also want to have a look at local property listings to get an idea of how much your property is worth.

So, let’s get into the numbers.

Interest rates must be fixed or, if they’re variable, there must be a cap (upper limit) which is fixed for the life of the loan. This is a standard set by the Equity Release Council which binds all their members.

You have the right to remain in your property for life, or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your new contract.

It’s essential that providers make it clear, in their product literature and contract terms, what is or isn’t acceptable under their definition of long-term care. For example, whether the provider defines long-term care as care provided in an institution such as a nursing home, or moving in with family members or friends, to be cared for by them in conjunction with other carers.

#2. The Homeowner’s Age

According to FCA and ERC1  authority, the minimum age at which a homeowner can take out a lifetime mortgage is 55. Nevertheless, for some products and benefits, you must be at least 60 years old.

You don’t typically have to make any repayments while you’re living in your home but, interest “rolls up” and the balance owed will keep on increasing.

Simply put:

The age of the youngest proprietor forms the basis of the equity release calculation and determines how much money can be released.

Since the minimum age can differ from one scheme to another, you must ensure that you speak to a financial adviser to ascertain beforehand whether you’re eligible.

#3. The Loan Amount

Depending on your plan provider, the minimum amount you can take out with a lifetime mortgage is £10,000 (if you’re making monthly payments). However, for some, it can be £15,000, or even £100,000 for more prestigious plans.

The maximum amount available will be subject to an overriding maximum of £800,000 for properties in England, Scotland, and Wales, and £250,000 for Northern Ireland.

The maximum you can borrow is dependent on the youngest property owner, their medical status, lifestyle choices, age, and of course, the home’s value.

What does this mean for you?

If you want to stop making monthly payments altogether, this can be arranged at any time. If you decide to stop making monthly payments, you can’t change this decision at a later stage.

The older you or your spouse are, the higher the maximum equity release amount you’ll be able to unlock from your home. If your partner is under 55, they must have independent legal advice and sign a waiver. This will cause you to incur additional legal costs but, is required.

Before you go ahead and ask your lender for more information or calculate the equity you can release, you first have to repay any outstanding mortgages.

In case you might be asking yourself:

What happens to your outstanding mortgage? You can opt to repay the mortgage before the application stage, or once you’ve unlocked the capital from your home, you’ll use some of the cash to settle your mortgage.

Your solicitor will arrange for the settlement of your mortgage on your behalf, therefore you don’t need to pay the funds directly to your mortgage provider.

Your plan provider needs to factor in the safeguards they’re providing you with (such as the no negative equity guarantee and a fixed interest rate for the life of the plan)

You can use our equity release calculator below and quickly discover the maximum amount of equity you can release.

#4. The Location of your Home

To qualify for equity release products, your home needs to be in the UK.

In addition, some plan providers can choose to impose localised rulings as to whether they service areas outside the UK.

Take note that:

Northern Ireland only has two equity release service providers.

Most providers insist that your property be located on the mainland, thus ruling out outlaying islands.

The Isle of Man is often left out, while most lifetime mortgage providers accept the Isle of Wight.

Nevertheless

Before making any final decisions, be sure to check with a financial adviser and find out if your location is a potential issue.

#5. Your Credit History

Equity release products typically don’t require you to make any monthly repayments, meaning that the lending criteria are a bit more relaxed than when applying for residential mortgages.

However, the matter of whether poor credit will stop you from unlocking the equity from your home depends entirely on the severity of your situation as well as your provider’s terms and conditions.

For instance:

Most lifetime mortgage schemes, depending on the equity release scheme you choose, won’t require you to undertake any form of credit check.

You can choose to make repayments or let the interest roll-up and get added to the total amount owed. The loan amount and any accrued interest will be paid back when you pass away or when you move into long-term care.

As can be expected

Your eligibility will entirely depend on you.

Common Questions on Equity Release Rules

Who Qualifies For Equity Release?
How old do you need to be for equity release?
Do You Have To Be 55 For Equity Release?
Can One Release Equity if They’re 54?
Can Equity Release be Refused?
How Does One Qualify for a Lifetime Mortgage Scheme?
What’s the Maximum Age for a Lifetime Mortgage?
Can You Release Equity with a Mortgage?
Can I Sell if I Have Lifetime Mortgage?
Can I Take Out an Equity Release Plan for a Second Home?
Does Equity Release Require Credit Checks?
Do You Need Good Credit Score for Equity Release?
Can You Get Equity Release with Bad Credit?
Do I Need a Solicitor for Equity Release?
Can I Sell My House and Still Live In It?
How Frequently Can You Release Equity?

In Conclusion

As with any other financial move, you shouldn’t make any rushed decisions when it comes to equity release, especially without a complete understanding of how it works, and what will be required of you. So be sure to do your research, consult your financial adviser, check how much you could release with an equity loan calculator, consider all equity release alternatives, and only then make a decision.

How Much Can You Release?

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How Much Can You Release?

Most people are using Equity Release as a means of retaining the use of their house while also obtaining a lump sum or a steady stream of income. Get matched with an expert and check your eligibility for equity release options.

Use our free equity release calculator & see how much you can release today.

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