Many people live in freehold properties and think they have to pay off the mortgage before getting an equity release.
This isn’t true. Equity release on a freehold property means you can gain access to funds tied up in your home before you need it to be paid off. You can use this money to receive a lump sum, or smaller, regular payments.
We will explore this topic more deeply in this article.
What is a Freehold Flat?
Freehold1 property is a home that the owner has complete control over. This means there are no leases, landlords, or restrictions on how they can use it and who lives in it.
You may have heard of leasehold properties that offer some degree of protection to the homeowner from being evicted by their landlord just because they want to sell, for example.
However, if you own your freehold property outright, then this can’t happen.
Freeholders are Subject to Fewer Restrictions than Leaseholders
A freeholder has the right to sell their property at any time. They can also sublet2 or rent out rooms in their home without permission from a landlord. The only restriction on this is that they can’t do anything which will change the character of the building.
This means if you want to turn your flat into an office space, this would not be allowed, and you should look into leasehold properties instead.
How Do I Find Out if a Lease is in Place?
There are a few ways to find out if you have a lease3, and these depend on the type of property. If it’s rented rather than owned, then there will be an agreement in place between yourself and your landlord, which should state whether this is the case or not.
Suppose you own a freehold property, but still rent out rooms to other people. In that case, it may also require some form of permission from your landlords – although again, there are limitations here, such as how many additional homes can be added before the building loses its freehold status.
If you’re not sure of the type of property your home is, then it may be worth checking with a solicitor who can advise whether there would need to be any restrictions in place based on this information.
Can I Get Equity Release if I Own a Share of the Freehold?
If you only own a share of the freehold, this may mean that it’s impossible to get equity release. Your landlord would need to agree and sign off on the sale with you for this action to happen.
However, if your landlord is unwilling to sign off on this, other ways can be explored instead. For example, if your landlord agrees with you, which states they would give up their interest in the property and allow you to sell it back as a freehold when you are ready, then this may open up more opportunities for you.
If your landlord does not agree to do this, then there are a couple of ways you can try and get equity release without their permission:
The first is via the courts, which requires that the judge decides whether or not it should be possible for you to release the property as a freehold – based on factors such as how much space they occupy in relation to yours.
However, if your flat was small enough (less than 14 square meters), this may not be an option since judges would assume that someone living in these conditions cannot afford anything other than a leasehold anyway.
The second way is by buying out another owner’s share to no longer have any rights over what happens with their ownership stake. This means they can sign off on any agreement for you to release equity from the property as a freehold.
Can I Get Equity Release if There is No Lease in Place?
If there’s no lease in place, you may still get equity release on a freehold property.
This can only happen when the homeowner and landlord have agreed that it should be permitted, but this depends on what type of property your house is and any restrictions put in place by deeds or covenants4 (i.e., whether they are covered).
For example, if your flat were built between 1925-1935, this would mean it has had its share of time under restrictive leases, and these properties will not always qualify for equity release.
A freeholder owns their own home outright and cannot be evicted without permission from themselves; however, they do forfeit some rights if rental income is received.
But, Why Would There Be No Lease in Place?
There are several reasons why there may be no lease5 in place, including:
- You bought the house outright and, therefore, never signed anything with your landlord.
- The property is protected by restrictive covenants which state that it can’t have any additional leases inserted.
- A previous owner agreed to a lease with their landlord, and it expired, but they didn’t insert another one in its place.
It’s worth noting that the last 2 options will require agreement from both landlords, so if your home doesn’t meet these criteria, then you may still be able to get equity release on a freehold property by going through other means.
However, this depends on what type of property your house is and any restrictions put in place by deeds or covenants – so make sure to check before taking any further action!
Is There a Maximum Age Limit to Get an Equity Release on a Freehold Flat in the UK?
Age limits may vary, depending on the equity release providers. Some lenders will offer plans for people as old as 95.
Is There Any Pre-Payment Penalty?
There is no pre-payment penalty with equity release for freeholders unless you end the plan early.
Can You Get Equity Release on a Freehold Property With an Outstanding Mortgage?
Yes, make sure the Equity Release provider is aware of any loans or mortgages, as they will take these into account when calculating your income and savings for eligibility purposes.
What Is the Difference Between a Leasehold and a Freehold Flat?
A freeholder owns the land, while a leaseholder pays to use it.
Can I Release Equity From a Flat That Is Not My Principal Home?
In most cases you can’t, but speak to your equity release provider to see if there is a plan that allows this.
When you own a freehold property, you can usually release equity in the form of a cash lump sum. However, there are some restrictions with this type of transaction that may not apply to leasehold properties.
You should always consult an experienced financial adviser or solicitor before taking any steps towards releasing your home equity if it’s a leasehold property.