Equity release property ownership criteria

When you apply for an equity release scheme, the lender will need to know a lot about the property you hope to release equity from.  For example, when and how it was built, on what basis you own the property and how it is occupied. If, in their opinion, any of these matters could affect the saleability of the property when the time comes, the lender may decide not to take your property on.

The Equity Release Council gives the following as examples of properties unlikely to be eligible for equity release:

  • Studio flats
  • Basement flats
  • Local authority housing blocks
  • Retirement properties

If you’re 55 or over and considering equity release, here’s a simple summary of common property types and tenures including whether they may be acceptable to equity release lenders.

Equity release on buy to let propertyequity release property

It is possible to release equity on a buy to let with a lifetime mortgage, however fewer lenders accept rental properties and those that do may offer stricter terms. The amount you can borrow may be lower than on your main residence and will depend on the value of your buy-to-let property and the amount of equity in the property.

There is also the option of a buy-to-let mortgage, which is similar to an equity release lifetime mortgage but is not regulated by the FCA and not fully compliant with the Equity Release Council’s standards, so you will not be protected to the same level.

Equity release on second homes

If you own a second home or holiday home, you may be able to release equity from it, although the amount you can release may be lower than if it was your main home and you will have fewer lenders to choose from.

Some equity release lenders will consider second homes provided it meets their conditions. These are likely to include:

  • The property is located in the UK and is not too close to your main home
  • The property is mainly for your personal use
  • The property is not rented out for more than four weeks at any one time
  • The property is of a ‘standard’ construction – log cabins, park homes and static caravans are not acceptable
  • How much the property is worth

Equity release on leasehold property

The key difference between freehold and leasehold is ownership of the land a property is built on, or in the case of a flat, ownership of the building it is in. Very simply, with freehold you own it and with leasehold you do not. Most flats in England and Wales are leasehold and it has become increasingly popular on new build houses.

If you own a leasehold flat or house, lenders may accept it for equity release. However, they will want to consider anything that may affect the ease with which the property can be sold before deciding, such as:

  • Length of the lease – most lenders will want at least 75 years remaining, if not more
  • Service charge – how much it is and exactly what is covered by it
  • Ground rent - if you pay this to your landlord as a condition of your lease
  • Buildings insurance – if you live in a flat and this is included in your service charge, you may need to get a copy of the insurance certificate from the management company
  • Sell on fees (if applicable) - these fees, often included in the lease agreement on retirement flats, must be paid when you or your beneficiaries sell the property

Equity release on freehold flats

Some equity release lenders will consider freehold flats if the freehold covers the whole building and all the other flats in the building are leased under it.

If not, taking out equity release may not be as straightforward as it would be on a freehold house. Particularly if there is no legal agreement in place specifying who is responsible for structural issues and the upkeep of communal areas. This lack of clarity increases the lender’s risk of complications when the property comes to be sold.

Are tenants in common eligible for equity release?

Unlike joint owners who both own the whole property, tenants in common each own a share of it. If you co-own your property in this way, you may be eligible for equity release as long as you apply together. You can't just release the equity on your share.

As tenants in common, when the first person dies their share of the property is passed on according to their will. If it is left to the co-owner, your equity release plan is unlikely to be affected.

However, if it is left to someone else, your lender could restrict access to an existing drawdown facility and may not be willing to lend any more money. It is always worth asking your financial adviser to check what steps the lender may take on the death of the first borrower before deciding whether to proceed with equity release.

Equity release on retirement flats

Only a handful of lenders may consider equity release on a retirement flat. This is mainly because the lease conditions on retirement properties tend to be restrictive, often including ‘sell on’ fees payable when the property is sold, or ownership is transferred to your beneficiaries.

However, if you already have equity release and plan to sell your home and move into a retirement property, your existing lender may allow you to transfer it, but this will depend on the property you choose, and the conditions attached to it. Some lenders may also waive the early repayment charge, usually if you move 5 years after taking out equity release.

Are ex-local authority properties eligible for equity release?

Some lenders will consider an ex-local authority property provided you own the freehold.

If your property is leasehold and the local authority is the freeholder, lenders are less likely to consider it. Those lenders that will, may insist that you buy the freehold. This can be done in parallel with your equity release application but will add time and cost to the process.

Next steps

No matter the property you own or the tenure you hold, it is always worth speaking to an independent adviser to see if you are eligible for equity release.

After careful consideration, we have teamed up with the UK’s leading independent equity release broker Age Partnership. Their specialist advisers can assess your property and research the whole market to find the most fitting equity release schemes for your personal circumstances.

Call 0113 2093531 for a free discussion on releasing equity from your home or try the calculator to see how much equity you could release.

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