Equity release criteria – are you eligible for a lifetime mortgage?
If you're considering equity release to raise some extra funds, you will need to meet some straightforward eligibility criteria. You should be able to answer 'yes' to these questions:
- For a lifetime mortgage, are you at least 55 years old?
- For a home reversion plan, are you at least 65 years old?
- Do you own the property you intend to release equity from and is it in the UK?
- Is the property worth at least £70,000?
Other equity release criteria
Your lender will also consider a few other factors when deciding whether to accept your application for an equity release scheme:
- Your age when you apply
- Your ownership and use of the property
- Any remaining mortgage on the property
- Where the property is located
- The value of the property
- How your property is constructed
- The condition of your property
- How much equity you want to release.
Let's look at each of these equity release criteria in more detail.
1. Your age when you apply
When equity release providers are deciding how much money they can lend you, they will base their calculations on the age of the youngest applicant. This means that if you co-own your property with someone younger than 55 (or 65 for a home reversion plan), you will need to remove their name from the deeds before you can arrange equity release.
There may also be an upper age limit; some lenders stipulate a maximum age of 90, although most plans have no upper limit.
The older you are, the more cash you can usually release.
2. Your ownership and use of the property
While most houses in the UK are freehold, most flats are leasehold ie. you own your property, but the freeholder owns the land or building it sits in. If you own a leasehold property with only limited time left on the lease, your eligibility for equity release will depend on the lender.
The same will apply to properties that are not your main home, such as buy to let properties and holiday homes. An independent equity release specialist such as Age Partnership, will be able to advise you on which providers will consider these types of property.
For a rental property with tenants in place, your lender will probably insist they commit to a six- month assured tenancy agreement.
For equity release on a holiday home, you will probably need to guarantee that it is not rented out for more than 4 weeks at a time.
3. Any remaining mortgage on the property
If you have already paid off your mortgage you will be eligible for equity release. If you still have a mortgage on your home, it will depend on the size of your remaining mortgage. If you are accepted, the outstanding amount will need to be paid off using the money you release.
4. Where your property is located
If you live in England (including the Isle of Wight), Wales or Scotland, you will qualify for equity release plans from almost, if not all, providers. However, some providers exclude residents of the Isle of Man and if you live in Northern Ireland, your choice of provider is likely to be very limited.
Your equity release provider will also look carefully at any buildings or operations near the property that could affect its value and saleability – sewage works, for example, or a sub-station.
5. How much your property is worth
Your property must be worth £70,000 or more to be eligible for equity release, with some providers setting a higher minimum value.
Technically there is no upper limit, but some providers do specify a maximum value to safeguard themselves from risk.
6. How your property is constructed
Equity release lenders will consider most 'standard construction' properties. That means houses, flats and bungalows built of brick or stone, with pitched tiled or slate roofs.
Until recently it was practically impossible to get equity release on properties that didn't fit this description, but some providers are now more tolerant of non-standard features. For instance, if your home has a flat roof or an annexe, or if it's partly used for business, you may still be accepted.
7. The condition of the property
Your equity release loan will need to be repaid when the last borrower dies or moves into long-term care. Providers will take a close look at its condition and saleability before agreeing to lend you any money, so your home will need to be in good order when you apply and then maintained to a reasonable standard.
8. How much equity you want to release
How much equity you can release will vary according to your age, your home's value, and how much equity you hold in it. Depending on your age, you could release between 20% and 55% of your home's value – tax free.
The minimum you can release is £10,000 and some providers also have a maximum lending limit.
Find out how much you could release
Does equity release require credit checks
Equity release has one major advantage over traditional mortgages; the provider doesn’t need to take account of your income or expenditure. This is because you don’t have to make any regular repayments.
Even if you choose to make repayments, you still won't be subject to any income or expenditure checks.
Lenders are generally quite tolerant if you have a bad credit history. You may not have to undergo a credit check, but ultimately it will depend on the lender and how bad your situation is. For example, if you have been declared bankrupt, you won’t be accepted for equity release until you are discharged.
Can you be refused equity release?
If you meet all the equity release criteria set out in this article, then you’re unlikely to be refused equity release, particularly if you have a specialist adviser to support you. However, be aware that:
- if you don’t have buildings insurance in place, you could be turned down. Equity release providers require you to be covered for the full rebuild value of your home, which should be index linked with inflation.
- if your home is not in good order, or is urgently in need of repairs, your application is liable to be declined. At the very least, your lender will require you to carry out the repairs before they consider your application.
- Lenders are much less likely to approve non-standard construction materials such as concrete, timber or metal-framed buildings, although very high-quality, modern builds may be acceptable to some providers.
- Providers may consider your health including pre-existing medical conditions. If you have any health issues that could reduce your life expectancy, they will usually offer to lend you more, on the basis they will probably be repaid sooner.
Other people living in your home may be affected
Anyone not named on your equity release application who lives in your home may be affected when you take out equity release. For instance, your children, a lodger or your partner if you’re not applying in joint names. For them to continue living with you, they may be required to waive any right to stay in your property after you die or move into long-term care.
This waiver will also apply to anyone who moves into your home in the future.
If you take out equity release alone and get married further down the line, you may not be able to add your partner’s name to your plan. This could leave them having to sell your shared home to pay off the lifetime mortgage or home reversion plan when the time comes.