Do I Qualify for Equity Release?

Equity release has become an increasingly popular way for ageing homeowner to release cash tied up in their homes. However, to be eligible for the lump sum financial product, there are various considerations that equity release lenders will take into account, including:

Age of the applicant

The minimum age of the application looking to borrow through equity release is 55 for a lifetime mortgage and 65 for a home reversion mortgage.

The minimum age of a home reversion plan must be higher because the lender is able to give a lot more money upfront, but this means taking on more risk, so by increasing the age, it means they potentially recover their funds sooner.

An important factor is also the age of the youngest homeowner, which is likely to be your partner or spouse. The main benefit of equity release is that you can continue to live in your home until you die or go into long-term care, and this applies to your partner or any other homeowner too. The rules set out by the Equity Release Council ensure that no one will be forced out of their home due to an equity release plan.

However, the lender only truly recovers their lump sum when the owners move out and the house is sold. So in most cases, the youngest homeowner also needs to be a minimum of 55 years old. If the homeowner were in their 20s or 30s, it could take another 60, 70 or 80 years for the mortgage provider to recover their costs in full – so they are unlikely to proceed on this basis.

If you have a joint mortgage, the application for equity release might need to be in both of your names.

Location and condition of the property

The equity release providers we work with at Equity Release Online require your property to be located in the UK, Wales, Scotland or Ireland. There are a limited number of providers that operate in Northern Ireland and the Isle of Man is usually excluded from the eligibility criteria.

The condition of the property is very important and equity release providers want peace of mind that the property is well kept and is going up in value. Those properties with a huge amount of clutter, mould, subsidence, damage or located near a cliff – will be considered higher risk and less likely to be approved.

Some lenders may be hesitant towards properties with flat roofs, given the potential risk of flooding.

Your application will always be subject to a survey and valuation before your equity release scheme can proceed.

Outstanding mortgage payments

To qualify for an equity release mortgage, you will typically need to have paid off all of your mortgage or have just a little bit left. The lender will want you to have an amount outstanding so that when you receive your funds through equity release, you can pay off your existing mortgage and any other outstanding debts.

The lender wants you to have very little debt outstanding so that your house can be sold at the end of the loan term – and they can recover their full funds and interest payments.

Freehold or leasehold of the property

Both freehold and leasehold properties are acceptable to qualify for an equity release scheme, with a minimum of 75 years left on the lease. If you have less than this, you can always look at extending your lease, which may cost a few hundred or thousand pounds.

Minimum property value

Equity release providers usually require a minimum property value of £70,000, which will be confirmed through via a professional survey. Some lenders may also impose a maximum property value such as £1 million in order to protect themselves from risk. In the event of a recession or housing market crash, larger homes may see a much bigger fall in price and this could leave the provider out of pocket.

Customer’s credit history

Not every equity release application requires a credit check, since you are able to use your home or flat as security. Hence, it may appeal to customers with bad credit histories looking for finance.

However, for some lenders, running a credit check is essential because there are products which have monthly interest repayments and someone with a good credit score is likely to keep up with payments on time. Meanwhile, if the borrower has recent defaults, CCJs or went bankrupt, this could make them less reliable and a greater risk to lend to.

Do I need to show proof of income?

Generally speaking, you will not need to show proof of income, and equity release is commonly used by people who are retired.

For very specific products where you are making monthly payments, the lender may request a copy of your recent pay-slips and you could be required to show around three months’ worth of income. This is essential under the new Mortgage Market Review (MMR) rules of lending for mortgagees.