Bad Credit and Equity Release: What are My Options?

For most people, your home is likely to be your biggest financial asset. And while every person’s home is their own ‘castle’, it can be quite difficult to have all of that finance locked behind the doors of your home.

If you’re thinking about unlocking some of the money that is currently tied up in your home – equity release has most likely been on your radar.

Whether you’re looking to fund your retirement plans and income or pay off existing debts, equity release can be a useful mortgage product that can provide you with the finance that you want.

But what if your credit score isn’t perfect? Will you still be able to secure an equity release mortgage with bad credit?

In this article, we explore how an equity release with bad credit doesn’t always spell trouble, as we dive into how it all works and exactly what lenders will consider. Let’s jump in.

How Does Bad Credit Impact Your Equity Release Application?

It’s true – when you apply for a traditional mortgage loan, poor credit can become a slight roadblock as lenders will typically correlate bad credit with a lack of, or inability to manage any ongoing financial commitments.

The good news – when it comes to equity release, lenders are generally more flexible with borrowers who have poorer credit scores and will look at things a little differently.

Due to the fact that most equity release products – the most common product today being a Lifetime Mortgage – are only repaid when your property is sold. This will usually take place after you pass away or are moved into long-term care.

As such, lenders’ primary focus will be on the value of your property rather than your credit score.

With that being said, your credit history isn’t completely ignored and will still be assessed, even if the weighting is only a minor consideration.

Here’s how bad credit could affect your equity release application:

Outstanding secured loans

If you currently have a mortgage or a secured loan, it will likely need to be paid off before you will be considered for an equity release product. Many people use funds from their equity release in part to help pay any outstanding mortgage loans.

Credit cards or personal loans

While outstanding charges on credit cards and personal loans won’t always disqualify you, lenders may require that funds provided from the equity release are used to clear them.

CCJs or IVAs

Unfortunately, it is unlikely that you would be able to secure an equity release mortgage with a CCJ or IVA. Lenders will request that all debts are cleared before an equity loan agreement can be put into place.

In reality, your credit score is absolutely part of the picture, but it’s not the whole story.

As we mentioned before, the main focus of lenders will be on the property value and your ability to repay the interest on your monthly mortgage repayments. As such, it’s still very possible to get a home equity loan with poor credit.

Types of Credit Issues and How Lenders View Them

How lenders view your credit histories can vary, and it will often depend on the type and severity of any credit issues that are found.
For example, borrowers submitting an application for an equity loan who have a single missed payment would be viewed favourably over another applicant who has faced more serious issues like bankruptcy.

To give you some insight into what lenders will be looking for, here’s are some different scenarios and how they could be viewed:

• Missed payments or defaults: These are relatively common and may impact your equity release application at all – especially if they’re historic.
• County Court Judgments (CCJs): Some lenders may consider applicants with CCJs, but it is unlikely that you will be able to secure an equity loan until your CCJ has been settled. Alternatively, lenders may stipulate that funds from your equity release are directly used to clear this debt.
• Individual Voluntary Arrangements (IVAs): While some lenders will require your IVA to be settled before your application, some lenders will allow IVAs to be settled upon completion. It is important to note that in the final year of your IVA, you will be required to release equity from your property in order to repay your creditors.
• Bankruptcy: You will not be able to secure an equity release mortgage if you have not been discharged from bankruptcy. In fact, most lenders require at least six years to have passed since your bankruptcy was discharged before they will consider your application.

While these scenarios can provide you with an insight into how lenders will view your application, it is important to note that each lender has their own approach and criteria you will need to meet.

Working with a trusted broker – like Boon Brokers – can provide you with vital information about each lender, how to progress with your application, and what the best equity release products there are on the market today.

Can I Get an Equity Release with Bad Credit?

The short answer is – Yes, you absolutely can.

In fact, today there is a growing number of lenders that will offer equity release products specifically designed for people who are looking for equity release with bad credit.

While lenders can often be vilified, the truth is that lenders know that a low credit score doesn’t always reflect how someone manages their money – especially if the credit score in question is low due to historical decisions.

As such, a late payment from years ago won’t carry the same weight as ongoing missed bills. What matters most is your current situation and your property’s value.

If you’re applying for a home equity loan with low credit, here are a main questions lenders will want answered:

• Could you manage the monthly interest payments?
• Are your credit issues in the past, rather than ongoing?
• Is the property value enough to warrant an equity release?

Each lender will have their own methods of assessing applications, and so it’s always best practice to work with a trusted broker who knows the landscape. At Boon Brokers, our expert mortgage advisers are completely fee-free and can help search for the best lenders tailored to your financial situation.

How Can I Get an Equity Release With Bad Credit?

Even if your credit history isn’t perfect, don’t worry – applying for an equity release mortgage is quick and easy.

The key is finding equity release lenders who understand your financial circumstances and can offer you the best and most competitive rates available. Here’s what you need to do:

• Speak To An Advisor: Speak to a professional and trusted adviser. At Boon Brokers, we will assign you a dedicated mortgage expert to assess your situation, listen to your requirements, and recommend suitable lenders and options that are available to you.
• Choose Your Equity Plan: While there are typically two types of equity release: Lifetime Mortgage or Home Reversion Plans, your dedicated adviser will talk with you about the best option for your needs.
• Property Valuation and Checks: Your chosen lender will conduct their own valuation of your home and check your credit file.
• Funds Released: Once your chosen lender has completed their checks and approved your application, you’ll be able to access your money as a lump sum, in installments, or both.

Crucially, by working with a trusted broker like Boon Brokers, your application will be completed by an expert, from start to finish. Our services are completely fee-free and aim to take the stress out of your mortgage journey.

Speak to a Trusted Mortgage Broker

There’s a lot to consider when it comes to equity release, and you’re likely to have an arsenal of questions both before and during your application – especially if your credit history is less than perfect.

That’s where working with a trusted mortgage broker can make a real difference.

Rather than trying to figure it all out on your own, you’ll have an expert in your corner ready to guide you through the entire process, helping match you with lenders that suit your requirements.

With tailored support and advice based on your unique financial circumstances, you can find an equity release product that is right for you.
Contact Boon Brokers and discuss your equity release plans with an expert today!