Equity Release Criteria

Do You Qualify?

I think you’ll agree with me when I say…

There’s a lot to learn when it comes to equity release.

Lucky for you, here is a comprehensive guide where you can find information about the process of equity release products. By perusing this guide, you can finally understand the benefits and what is required of you when taking out an equity release product and if you qualify for one if you need additional sources.

The Qualification Criteria

Equity Release is a way to unlock the value of your property and turn it into a cash lump sum additional. You can do this via a number of policies that let you access – or “release”- the equity (cash) tied up in your home if you’re 55+.

Although equity release can be used to repay existing debts this may end up costing the customer more in the long term.

If you are property rich and over 55, you might be eligible for an equity release scheme and more benefits.

The most common form is a mortgage¹  that isn’t off until you die. So if you have no one to leave your assets to, it’s a decent, though expensive, route to raise cash.

However, there are information and considerations your lender will require you to fulfill before submitting your new application.

These are typically split into several categories, which equity release providers use as information to evaluate to find if you can release from your estate.

In home reversion you sell a part or all of your home to a home reversion provider in return for a lump sum or regular payments.

#01. The Property Criteria

According to most lenders, the minimum value of your home should be at least £70,000. Theoretically, there is no maximum limit, but, some set theirs to safeguard themselves from risk.

Your property’s condition is also something that lenders take seriously. You are expected to have your home in pristine conditions and properly maintained. If you have clutter or you need repairs done, your provider can decline you.

Therefore, before your application, make sure you have your home in a pristine new condition, and get that money without having several hiccups.

Interest rates²  must be fixed or, if they are variable, there must be a cap (upper limit) which is fixed for the life of the loan (Equity Release Council Standard)

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. (Equity Release Council Standard)

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

#02. The Homeowner’s Age

Currently, according to FCA and ERC⁴  authority, the minimum at which a homeowner can take out a lifetime mortgage is 55. Nevertheless, for some, at least 60 years, usually, you don’t have to make any repayments while you’re alive, interest “rolls up” in the benefits.

The age of the youngest proprietor forms the basis of the equity release calculation. It determines how much money you can release.

Since the minimum age can differ from one scheme to another, you must ensure that you always take the service of your financial adviser to ascertain beforehand whether your eligibility may be a problem.

#03. The Loan Amount

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

The maximum amount available will be subject to an overriding maximum of £800,00 for properties in England, Scotland, and Wales and £250,000 for Northern Ireland.

The maximum you can borrow is dependent on the youngest person in your residence, their medical status and lifestyle choices, age, and of course, the estate’s value.

If you want to stop making monthly payments altogether, this can be done any time. If the decision is made to stop making monthly payments, the cannot be restarted.

The older you or your spouse is, the higher the maximum equity release loan you can unlock from your home. The partner under 55 must have independent legal advice and sign a waiver, which would incur additional legal costs.

You also need to note that before you go ahead and ask your lender for new information or before you go on to calculate the equity you can release, you first have to repay any outstanding mortgages.⁴ 

You can opt to redeem the mortgage before the application stage, or when you are unlocking the capital from your home and use to clear the mortgage amount.

Your solicitor will find a new plan for you, therefore getting rid of the need to pay the funds directly to your mortgage provider.

Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee⁵  and a fixed interest rate for the life of the plan)

You can use our equity release calculator below and discover the maximum amount of equity you can release as an information service.

#04. The Property’s Area

For you to qualify for equity release products, it needs to be in the UK.

You also need to note that some plan providers can choose to impose localised rulings as to whether they can include extremes of the UK within their remit.

For example, Northern Ireland is presently constrained to just two lenders.

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

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

So, before rushing to make any final decisions, be sure to check with your professional adviser and get to know if your location is a potential issue.

#05. 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 you are 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 plan provider’s terms and conditions.

For instance, with most lifetime mortgage schemes, depending on the equity release rules you choose, do not undertake any form of credit check.

You can choose to make repayments or let the interest roll-up in the benefits. The loan amount and any accrued interest are paid back when you die or when you move into long-term care.

Like the rest, your eligibility will entirely depend on you.

As with any other financial plan for more information about the benefits, you should not make any rushed decisions when it comes to equity release, especially without a complete understanding of how it works, and the expected requirements. So, before you decide that it is what you need in your life right now, be sure to research it, consult your financial adviser, so they can find the right plan for you, consider your options and then make an informed decision.

Common Questions