Equity Release criteria often confuses many people. Homeowners over the age of 50 are able to release funds from their property, however many false narratives and rumours have grown about Equity Release over the last 20 years.
This is largely because many of the Equity Release products that were launched in the late 1990s did not have the protections in place that exist today. These include the ‘no negative equity guarantee’ and the ability to pay the interest on the loan. Just as importantly, it should be remembered that Lifetime Mortgages are the main form of Equity Release, with over 99% of the market being this type of mortgage. Home Reversion plans, which differ from Lifetime mortgages as you no longer own all of your home, form a tiny percentage of the market.
Age
Traditionally, Equity Release has been available only for homeowners aged between 55 and 99, however in recent years this has changed. Now, with a wider ‘Later Life Lending’ market rather than just Equity Release, the provider numbers and therefore the product range has grown significantly.
This means that products are available to homeowners from aged 50 to over the age of 100. These changes have accelerated over the last 5 years with new lenders entering this growing market. Products are now available that allow you to pay some, or all of the interest, and many also allow the capital to be repaid alos. One lender allows up to 40% of the capital to be repaid each year which means, in theory, you could repay the entire loan on day one of year three with no Early Repayment Charge!
Amount of equity needed
With Equity Release products, the amount of equity you can release depends on the age of the youngest borrower. Typically up to 55% of your property value can be released, however this is usually only allowed for applicants in their late 70s and above.
As the amount of equity needed in your property varies, it is always best to consult a qualified Advisor to give you a personalised quote. Equity Release must be the only loan secured on your property, so any existing debt must be paid off using the money raised.
With other types of Later Life Lending such as Retirement Interest Only (RIO) mortgages and Interest Only Mortgages for over 50s, the amount you can raise can be significantly more, often up to 70% of the property value. This is because these types of mortgages are subject to different criteria affordability checks and credit score which Equity Release is not.
Property value
The minimum property value that most lenders will accept for Equity Release is £70,000. If your property is valued at over £1 million, some lenders may have additional checks to carry out, however lenders are used to property values exceeding this amount.
Property condition
The condition of the property is an important consideration for lenders. The property must be kept in a ‘good state of repair’ both at the start of the mortgage term, and throughout the lifetime of the mortgage. Property that needs urgent repair, is incomplete or has structural damage is unlikely to be accepted by a lender.
Property Criteria
As there are many lenders within this market, the property criteria varies between each lender. This is where an experienced Advisor is worth their weight in gold.
Some lenders will not lend of the property is too close to commercial property, in a high flood risk area, in an area with a large number of Council houses etc. It is always best to check with an Advisor before going too far into your research if you are at all unsure if your property will be accepted.
Did you know the total annual lending for releasing equity in 2023 was £2.6bn, find out more 2023 equity release market statistics here.
What are the eligibility criteria for equity release – Audio
What are the eligibility criteria for equity release – Video
Does ill health affect releasing equity?
Perhaps strangely, certain illnesses and lifestyle conditions can have a positive effect on the amount you are able to borrow using Equity Release. Several lenders ask about height, weight, smoking and drinking questions, as well as asking about serious medical conditions that applicants have suffered.
These lenders then use this information to offer an enhanced plan (often at a higher interest rate). These plans usually offer a higher Loan to Value than the traditional products, which can be useful in certain circumstances.
Can you be refused Equity Release?
The short answer is yes. Although Equity Release is not subject to lender affordability checks or credit scored, the lender can still refuse to lend. This can be for a variety of reasons including.
Outside Lenders Criteria
The property does not fit the specific lenders criteria. The classic example is spray foam loft insulation. Equity Release Lenders will not lend on a property with this installed. There are many other lending criteria reasons that could cause a decline, including Japanese Knotweed present, too close to commercial premises etc.
Loan reason
Lenders decisions vary on this one. Some will allow borrowing for business purposes, whilst other will not. Borrowing for investment purposes is not allowed by any lender, neither is borrowing to gamble.
Property Condition
Your property’s condition is also part of lenders equity release criteria, if it is not in good condition this can be a risk to a lender as it is important to them that, if necessary, the property can be resold easily.
The surveyors report is crucial in this as the survey forms the evidence that the lender will base their final decison to lend on.
Is it difficult to release equity in a property?
Although the eligibility for releasing equity list may seem long, releasing equity from property is fairly easy to do. Ensuring that the advice you have received is professional, has considered all options and is geared towards your personal circumstances both now and in the future is the difficult part.
Always ensure that your Advisor is a member of the Equity Release Council and that they consider all types of Later Life Lending and do not just sell Equity Release products to you.
Do you need a good credit score to release equity?
Lenders will look at your credit score as part of their equity release criteria, if you have a good credit score then it is likely that all Later Life Lending products (both credit scored by the lender and not) are available to you.
In theory, the better your credit score, the more options you have. However, as Equity Release products are not credit scored, then a poor credit score may not necessarily be an issue.
Conclusions
The borrowing options for homeowners over the age of 50 have grown hugely over the last five years.
This means that there are now more options for more people to find solutions for their individual set of circumstances. This is why obtaining the correct advice has become even more important.
At Advice Guru, we have the experience, the qualifications, the knowledge, the contacts and most importantly, the desire to ensure that you receive the correct advice for your individual circumstances.
We do not sell products, we advise on the best solutions for you. If the advice should be; do nothing, wait, sell your property, borrow from family, apply for grants or benefits, take in a lodger, use a credit card or unsecured loan, we will not hesitate to advice you to do this.
