Equity release property: What's acceptable to lenders
*Updated July 2024*
If you’re 55 or over and considering equity release, this article explains which property types and tenures that may be acceptable to equity release lenders, including:
When you apply for equity release, the lender will need to know a lot about the property you hope to release equity from. This typically includes:
- When and how the property was built
- How your property is owned/occupied
- The condition of your property
If, in their opinion, there are any issues that could affect the saleability of the property when the time comes, they may decide not to take your property on.
It is possible to release equity on a buy to let property 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.
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
You cannot get equity release on your share of a jointly owned property. You would either need to apply for equity release in both your names or remove one of the joint owners from the title deeds and apply individually. A jointly owned property means both owners own the whole property and have equal rights to it.
It may be possible to get equity release on a jointly owned property because the joint owners own 100% of the property between them.
However, both owners also have equal rights over the property, so to be eligible for equity release you must apply in joint names. So both owners must be aged over 55 and the property must meet the lender's eligibility criteria.
With equity release in joint names the loan usually doesn't have to be repaid until the last surviving owner dies or moves into long-term care.
To apply for equity release individually, your co-owner would need to be removed from the title deeds first.
Before deciding if equity release is the right course of action., you must first seek professional financial advice to ensure you have both considered the alternatives and understand the implications.
If you own a leasehold flat or house, it may be acceptable to lenders for equity release. However, they will want to consider anything that may affect the ease with which the property can be sold before deciding.
When it comes to equity release on leasehold flats or houses, different lenders may have different lending criteria, 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
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 are not sure whether your property is Freehold or Leasehold we recommend you check your title deeds.
For more information on releasing equity on a leasehold property visit the Equity Release Council website.
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.
If you co-own your property as tenants in common, you may be eligible for equity release as long as you apply together. You can't just release the equity on your share.
Tenants in common is where you may own different shares in the property and the property does not necessarily go to the other owner when you die.
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.
You may be able to get equity release on a retirement flat, but only a handful of lenders may consider this. 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.
If you are looking to get equity release on a retirement flat, talk to an independent equity release specialist such as Age Partnership.
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.
Ashley Shepherd, Managing Director of Simply Equity Release, shares his answer to a question he's regularly asked: Can I sell my house if I have equity release? The short answer is yes, you can sell your house if you have equity release because you can pay off the loan at any time. Although you should be aware that you may face early repayment charges depending on the terms of your loan. Visit our sister site, Over50Choices, for further information.
Next steps
No matter the property you own or the tenure you hold, it is always worth speaking to an 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 market to find the most fitting equity release schemes for your personal circumstances.
Call 0800 368 8466 for a free discussion on releasing equity from your home or try the calculator to see how much equity you could release.