Are you a property owner over the age of 55 looking to release equity from your home?
Once you know what’s equity release, you’ll understand all the rules of equity release and basic criteria. Now it’s time to take your research to the next level. So you think that you qualify, but you’re still not entirely sure?
Continue reading to learn more about 6 frequently asked questions when it comes to equity release criteria!
What You MUST Know
Before continuing, check out this quick video of the most important information on equity release.
6 IMPORTANT Equity Release Criteria Questions
As a homeowner in the UK, who is over 55, you likely qualify for equity release. There is, however, some criteria that might be relevant for you.
Check these out!
1. Is there a minimum and a maximum loan amount?
There is, in fact, a rule of the minimum amount of equity that you can release from your home. In general, this is £10 000. However, your equity release costs can be deducted from this amount.
Take note: The minimum amount can differ from one plan to another. Your financial adviser will have this information for you.
The maximum loan amount will depend on the value of your property and your age. Some lenders do cap this amount. However, others will refer your case to another lender, should you wish to exceed their cap.
2. Does one have to have a good credit score to get an equity release?
Unlike traditional mortgages, you are not obligated to make any repayments in your lifetime with an equity release. Therefore, your past income and expenditure are not heavily scrutinised for equity release.
Lenders will generally overlook a poor credit history, depending on how severe the situation is. This will, however, differ from one lender to another, according to their terms and conditions. You will never be able to release equity while you are in an undischarged bankruptcy.
Some lenders will request you pay any outstanding IVA’s or County Court Judgements, using a portion of the equity you release.
Finally, there are a handful of lenders who may not even do a credit check. You can inquire about this with your financial adviser.
3. Can you get equity release on all property types?
The great news is that equity can be released from any standard construction property. These include:
Additional criteria may also be considered by some lenders, like a 100% flat roof, those with some commercial activity, certain spray foam insulation, and properties with an annexe.
Concrete, timber-framed and metal-framed properties may be declined for equity release. This will depend on the type and age of construction.
4. Can you release equity from a leasehold property?
If the remaining lease length meets your equity release lender’s underwriting requirements, then you can release equity from the property. These criteria may differ between lenders.
In addition, you can look at extending your lease as part of the equity release process if the current length doesn’t qualify, which may incur additional charges.
5. Can you release equity from an ex-local authority property?
Yes, you can release equity on ex-local authority properties. However, the lender will consider the number of local-authority owned properties in the area.
The minimum property value accepted for a flat is £200 000 in such cases.
If the freeholder of your leasehold property is the council, the lender may require you to purchase the freehold, before you can release equity from your home. Any additional costs can come from the equity released.
Note that in these instances, the equity release process might take a little longer.
6. Does the location of your property matter?
First off, your property must be located within the UK to qualify for equity release.
The individual lender will decide if they are willing to release equity from a property in your specific area. Some lenders will only work with properties on the mainland, while others will release equity from properties on some or all islands.
Ask your financial adviser if the location of your property could be a potential issue.
Got Questions? Check These First!
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.
Do you think that equity release might be the perfect way to give your retirement the cash injection of your dreams?
In addition, you must get in touch with an independent financial adviser to start your equity release journey and use our equity release calculator to find out how much cash is tied up into your home!
With the right guidance and a full understanding of the rules, equity release can be a straightforward, stress-free process. What are you waiting for?