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.
Read this article Equity Release Schemes
Common Questions 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 and above (lifetime mortgages) and 65 years and above (home reversion plans). The youngest borrower’s age forms the basis of the equity release
- Possess an estate that’s valued at £70,000 and above
- Your property must be located in the UK
Learn More: Equity Release Criteria
What Are The Pitfalls Of Equity Release?
In as much as equity release plans offer you several benefits like financial freedom, they have numerous drawbacks. Some of these pitfalls include:
- You get a reduced inheritance
- There’s ‘rolled up’ interest on the lifetime mortgage plan
- There are limits to the amount you can release
- They affect your state-entitled benefits
- You miss out on the increasing estate values
Learn More: Pitfalls of Equity Release
Does Equity Release Require Credit Check?
There are two forms of equity release plans: lifetime mortgages and home reversion plans. Unlike with traditional mortgages, equity release providers don’t conduct any credit checks or require you to make any monthly repayments. It’s the most flexible and convenient mortgage to consider.
Learn More: Equity Release Criteria
Do You Have To Be 55 For Equity Release?
Yes, you have to. Equity release plans are set for those who are aged 55 and above. Many plan providers also have an upper age limit, which is usually 85 years. So, depending on your plan provider, you have to be aged 55 years and above to access lifetime mortgages and 65 for the home reversion scheme.
Learn More: Equity Release Criteria
Who Qualifies for Equity Release?
Qualifying for equity release is contingent on the maturity of the youngest person on the title deeds & also your property criteria. Lifetime mortgages, for example, you need to be at least 55, whereas a home reversion plan’s, at 65. You must also:
- own your home,
- or have it on a freehold basis,
- it also helps if your residence in in good condition.
It is also vital to keep in mind that the least property value acceptable in the equity release sector is £70,000 at the moment.
What are the Criteria for Equity Release?
For you to qualify for equity release are, primarily:
- You have to be at least 55
- You have to own property valued at least £70,000
Can Equity Release be Refused?
Yes, it can. If you don’t meet the expected requirements, then the plan provider will refuse to offer you the plan.
For instance, if you don’t have buildings 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 also 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 will 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 any fraudulent information after you pass on, thus leaving your loved ones with a nasty financial mess to clear up.
You can read more on this by checking out ‘Equity Release Criteria.’
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 get the funds to buy your new 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 Assured Shorthold Tenancy in place.
You can also use the funds you release to offer a deposit on other properties unrelated to the buyer, like helping a loved one get on the property ladder.
I am 50 years. Can I Take an Equity Release Plan?
If you want to release a cash lump sum from your estate and are under the age of 55, you can’t qualify for a regular equity release plan. However, you can always sort out expert advice to find alternative solutions you may want to consider.
You can read all about this by checking out ‘Equity Release Criteria.’
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 in the property. However, those under the age of 55 are at a disadvantage. You can’t release any equity release plan if you’re below the recommended age, 55 years. If you do, then you’ll have been mis-sold on the equity release scheme.
Nonetheless, you shouldn’t worry since they are specific options you can consider, like re-mortgaging or taking out secured loans. 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 figure out which the best financial move you can make before you’re eligible for an equity release plan.
Can One Release Equity if They’re Over the 55-Age Mark?
Yes, they can. Equity release plans are for homeowners and UK residents aged 55 and above. Lifetime mortgages, for instance, are for those who are 55+, while home reversion plans require you to be at least 60 years old.
You can read all about this by checking out ‘Equity Release Criteria.’
Does Equity Release Require Credit Checks?
For most schemes repayments are not required, so many do not undertake any form of checks.
Do I Need a Solicitor for Equity Release?
Home owners considering a ‘lifetime plan’ to free equity from their property in retirement will be needed to have a face-to-face discussion with a representative before taking it out, under rules from the Equity Release Council.
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, your provider will charge higher premium, and the equity release firm may demand that and other financial factors—like your overall arrears —are in extra great shape.
The principal aim of equity release is to enable you to convert some of the value built into your land, and as such, it’s possible to do this even when you have outstanding pledge on the residence. However, the terms would need to be on a lifetime basis, and not on arranged-term, as it previously was.
Can I Sell My House and Still Live In It?
Yes, you can. With a reversion, you can deal in all or fraction of your residence in return for a one, income every month, or both.
Your abode, or the fraction of it you merchandise, now belongs to the reversion firm. However, you are permitted to carry on residing rent-uncharged in it until you breathe your last or move out permanently.
Can I Sell if I Have Lifetime Mortgage?
If you have a lifetime one, you borrow money against the value of your property and then reimburse this, plus annuity, at the end of the term.
If you want to move, your lender should be able to transfer the arrears to your recently acquired abode.
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 require to be repaid until you pass on or go into 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 you have an estate worth at least £70,000 in the UK, and your health conditions.
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 set their age limits.
When you take out the mortgage, most lenders usually set a maximum age of 65 to 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.
The advantage is in how it allows you to claim rights to bricks and mortar. It allows you to build up some equity in your name as the value typically increases. However, you might find yourself struggling at some point being property rich but money tight, and that’s where equity release comes into play.
It is a lifetime mortgage scheme, which gives those at 55+ to release money from their property to use as needed.
Can You Get Equity Release with Bad Credit?
Unlocking the equity tied up in your home when you have bad credit can be challenging.
However, 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 a security form of what you’ve already paid towards your present mortgage.
