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.
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.
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.
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.
Got Questions? Check These First on Equity Release Rules
Who Qualifies For Equity Release?
To be eligible for an equity release plan, you have to meet specific requirements like:
- Be aged 55+ (lifetime mortgages) and 65+ (home reversion plans). The youngest borrower’s age will form the basis of the equity release plan.
- Your estate should have a value of £70,000 and above.
- Your property must be located in the UK.
How old do you need to be for equity release?
For a lifetime mortgage you (or both of you, if you’re borrowing jointly) need to be at least 55 years old. For a home reversion plan you (or both of you, if you’re taking out a plan jointly) need to be at least 65 years old.
You must own property in the UK, which must be your main residence.
Do You Have To Be 55 For Equity Release?
Yes, you have to be 55 and above. Many plan providers also have an upper age limit, which is usually 85 years. So, depending on your provider, you have to be aged 55 years and above to access a lifetime mortgage and 65 for a home reversion scheme.
Can One Release Equity if They’re 54?
For equity release plans, the older you are, the more cash you can release from the value of your property. However, those under the age of 55 are at a disadvantage. You can’t release any equity if you’re below the recommended age of 55. If you do, then you’ll have to contend with certain restrictions.
Nonetheless, you shouldn’t worry since there are specific options you can consider, like re-mortgaging or taking out a secured loan. Secured loans, for instance, have a longer repayment term than unsecured loans, thus giving you more time to straighten out your finances and get the loan paid off.
So before you throw in the towel, make sure you consult your financial adviser and decide what’s the best financial move you can make if you’re not yet eligible for an equity release plan.
Can Equity Release be Refused?
Yes, it can. If you don’t meet the expected requirements, then the plan provider may refuse to make you an offer.
For instance, if you don’t have building insurance, then some plan providers won’t offer you an equity release plan. They’ll require you to have insurance for the full reinstatement value, which should be index-linked to keep in line with inflation.
If you don’t meet the minimum age requirement, your home’s value isn’t at least £70,000, and ensure that your home is in pristine condition, then the plan provider may also refuse to offer you the plan.
Some plan providers also take into account factors like personal health, and if you have a pre-existing medical condition, they’ll consider this. If your medical condition is likely to reduce your life expectancy, then they’ll increase your limit.
You must also be honest about such factors since it can invalidate your plan if they find out you provided any fraudulent information after you’ve passed on, thus leaving your loved ones with a nasty financial mess to clear up.
How Does One Qualify for a Lifetime Mortgage Scheme?
With a lifetime mortgage plan, you take out a loan secured on your estate which doesn’t have to be repaid until you pass on or go into long-term residential care.
It frees up some of the wealth you have tied up in your property, and you can continue to reside there. Qualifying depends on your age (which is usually 55+), if your estate is worth at least £70,000 and is located in the UK, and your overall health.
What’s the Maximum Age for a Lifetime Mortgage?
Typically, there’s no maximum age for applying for a lifetime mortgage. However, most plan providers have a set age limit.
When you take out the mortgage, most lenders usually set the maximum age at between 65 and 80. However, when the mortgage term ends, it’s often a maximum age of 70 to 85.
Can You Release Equity with a Mortgage?
Yes, you can. You can qualify for equity release even if you haven’t paid off your mortgage in full. A portion of the released funds will simply have to be used to cover your outstanding mortgage.
You might find yourself struggling with a cash shortage. If you’re property rich but money is tight, equity release can provide some much-needed release.
A lifetime mortgage scheme gives you access to money locked up in your home to use as needed – even when you still have an outstanding mortgage.
Can I Take Out an Equity Release Plan for a Second Home?
Yes, you can.
Purchasing a second home is something that most people dream about, and by taking out an equity release plan, you can finally access the funds you need to buy a second home.
For legal purposes, though, you have to either be the sole occupants of your new second home or let it out for a maximum of four weeks consecutively. You must also use the estate for a minimum of four weeks every year, and should have no formal agreements or an Assured Shorthold Tenancy in place.
You can also use the funds you release to offer a deposit on other properties unrelated to you, like helping a loved one get on the property ladder.
Does Equity Release Require Credit Checks?
For most schemes, you won’t have to make any repayments, so many providers will not perform a credit check.
Do You Need Good Credit Score for Equity Release?
You may be able to qualify for a HELOC if you have a score of between 660 and 700. However, if you have poor credit, your provider will charge a higher premium, and the equity release firm may demand that and other financial factors—like your overall arrears —be in extra great shape.
The principal aim of equity release is to enable you to convert some of the value built into your property to cash, and as such, it’s possible to do this even when you have an outstanding pledge on the residence. However, the terms would need to be on a lifetime basis, and not on a fixed-term basis, as was previously the case.
Can You Get Equity Release with Bad Credit?
Unlocking the equity tied up in your home when you have bad credit can be challenging – but isn’t impossible.
Since equity release, unlike traditional mortgages, rarely comes with monthly repayments, your credit history is less of a factor. You can certainly get approved, regardless of your credit history.
The principal reason is that you have security in the form of what you’ve already paid towards your present mortgage.
Can I Sell My House and Still Live In It?
Yes, you can. With a reversion scheme, you can use all or a fraction of the value of your residence in return for a single lump sum of cash or, income every month, or both.
Your home, or the fraction of it you release equity from, now belongs to the reversion firm. However, you’re allowed to carry on residing (rent-free), in it until you pass away or move out permanently.
How Frequently Can You Release Equity?
The frequency depends on:
- the existing terms,
- the outstanding balance,
- if the property value has increased.
Lenders will use a combination of you and your partner’s ages, the property valuation, and the loan-to-value tables, to help them determine whether you can release any more funds.
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.