Can You Be Refused Equity Release?
If you are considering Equity Release you may be wondering whether you can be refused the loan or if there are any pitfalls you may experience. You can be refused Equity Release for a small number of reasons.
The good news is the majority of Equity Release applications are accepted by lenders and the chances of you being declined are slim. You should however make sure you tick all the boxes to make your Equity Release process smooth.
This guide explains Equity Release and what factors can lead to a decline.
What is Equity Release?
Equity Release is a type of mortgage product that allows you to release the equity in your property for a cash lumpsum or regular payments (or a combination of both).
There are two types of Equity Release product in the UK:
- Lifetime Mortgages
- Home Reversion Plans
Both products follow similar guidelines. Lifetime mortgages allow you to release equity and when you pass away or require long term care, the property is typically sold to repay the loan.
Home Reversion Plans release equity by the lender paying you for a percentage of your property upfront. Therefore, the Home Reversion Plan provider owns a portion of your property. You then enter an agreement allowing you to reside in the property until you die or go into long term care.
Because both products have contractual agreements where money is secured against your property, you will need to pass a credit check when you apply. A misconception is your property will always be sold by an Equity Release provider. In reality, providers will allow your next of kin to settle the debt as well. This means your next of kin can repay the loan and retain the property if they wish.
Why Can You Be Refused Equity Release?
Equity Release products can be refused for several reasons, the most common are:
- Failing a credit check
- Not holding enough equity in the property
- The property not being suitable for the lender
Unlike traditional mortgages, Equity Release providers are more lenient on the types of property they will lend on. This leniency does have a limit and properties of unusual construction or homes that may be difficult to sell (unusual designs) may be declined.
Some lenders are also particular about the location of your property. If you live in a remote part of the UK or a lender feels they will have difficulty reselling the property your application may be declined.
A good example of this is properties on the Isle of Man are excluded by Equity Release providers while properties on the Isle of Wight accepted.
Can I Be Refused Because of My Property?
Typically, mainstream lenders will require your property to be of standard construction. This means homes built of brick with a tile or slate roof.
An Equity Release lender may consider non-standard construction properties such as thatched roof or concrete walls. Each provider operates different guidelines and you will need to discuss your property with an Equity Release broker, such as Boon Brokers, to find a lender for your home.
As you might imagine, there are also all manner of property deed restrictions that may cause a lender to decline the loan. Typically, restrictions where third parties can prevent a sale or restrict a sale are not accepted for Equity Release. For example, properties with forestry restrictions can be difficult to get Equity Release on.
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Can I Release Equity with Bad Credit?
You will need to meet a lender’s credit check threshold. In simple terms, your credit score will need to be higher than the Equity Release provider’s minimum score.
Equity Release providers are once again more lenient with credit scoring than traditional mortgage lenders, but there is a minimum cut off point with most providers.
If you have bad credit, you should discuss this in the first instance with your broker. Equity Release brokers can match your credit history to lenders or advise you how to improve your credit score to improve chances of acceptance. Overall, credit scores are not a big issue for most Equity Release borrowers.
The Amount of Equity You Hold
Equity Release lenders stipulate you must own all or most of your property. For example you may still qualify for Equity Release if you own 95% of the property.
If you have a shared ownership, it is likely that you will need to staircase (purchase a greater share in the property) until the housing association is removed before you can proceed with Equity Release.
If you have an existing mortgage, it is highly likely that it will need to be redeemed at least on completion of your Equity Release.
Most Equity Release lenders can lend up to 50% loan-to-value if the property is suitable and if you meet their age requirements.
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Other Equity Release Requirements
Finally, there is criteria you must meet to obtain Equity Release. For Lifetime Mortgages, you must be at least 55 years old and for Home Reversion plans you may need to be over 60.
You will also need to speak to an Equity Release broker who will assess your financial situation and help you decide if Equity Release is the right option for you. Based on current Equity Release criteria, the property you wish to release equity on will need to have a minimum value of £70,000 and must be based in the U.K.
Finally, your property will need to meet a provider’s minimum state of condition. Homes in disrepair or that have Japanese Knotweed can be declined because a lender will be concerned about recouping their costs.
Speak to an Equity Release Specialist
Equity Release is a serious financial commitment, and you must speak to an Equity Release broker in order to secure a suitable product. Some Equity Release brokers charge fees for their advice and service.
Boon Brokers is a Whole of Market Mortgage, Insurance, and Equity Release brokerage. Boon Brokers provides fee free Equity Release advice. Boon Brokers provides no obligation, impartial advice.
Book your Equity Release consultation and discuss any concerns you have about Equity Release with Boon Brokers today.