This week’s podcast is all about what property types are suitable for equity release, with Craig and Mark.
One of the things that comes up in feedback from clients is that they’re not sure whether their property is suitable for equity release. So this podcast will explain the process and give people an idea of what typical properties are accepted.
How do I know if my property will be accepted?
There are so many equity release products out there that there’s no definitive description of a suitable property. When I discuss equity release with a client, I always have a look at their property on Google Earth. I look at the property and the surrounding area to get an idea of the construction. If I had a specific issue with the property I would talk to the lenders and investigate it first before giving a client a yes or no.
One example we’ve had is where there were pylons very near a property – which some lenders didn’t like. We also had a recent enquiry through social media where we had to go and do specific research.
What property type is acceptable for equity release?
Generally lenders accept standard houses, bungalows, flats or maisonettes that are standard construction. Ex-local authority houses are generally no problem at all, as long as people have gone through the Right to Buy process.
Ex-local authority flats can be tricky. You get away with it more in London. But outside of London, a lot of the providers are not positive about ex-local authority flats.
Standard houses and even properties with quite a lot of flat roof would be accepted now, while previously anything over 35% flat roofing wouldn’t be considered. But at least one provider will now accept property with 100% flat roof.
What happens if my house is non-standard construction?
We need to understand what type it is. Timber, some prefabricated houses, steel framed houses… There are many variations. We would need to know when it was constructed to evaluate it and see if there’s a suitable lender.
What you’ve got to remember is that this is a mortgage for life. A provider taking your property as security for life wants to know that it’s going to last. In 20 or 30 years they need to know they can sell it. So if it’s built to a strange configuration, that could affect its saleability.
Is there a minimum or a maximum value for the property?
Again, that varies. But generally the minimum value is probably about £70,000. Some lenders limit it to £100,000 at the moment but again, that could change. In terms of maximum lending, some providers say £6 million, some say £600,000. Each one has their own ideas about maximum lending.
Does leasehold or freehold cause any issues?
Freehold is obviously the standard form of ownership in this country. In terms of leasehold, it gets a bit more complex because as you know, leasehold is a set period of years and as the years pass, the lease is expiring.
So there are rules and calculations based on how old you are and how much there is left on the lease. Generally there has to be a certain number of years left, typically 75 years. There are other calculations too. But freehold is fine in that sense.
Will my flat be suitable for equity release?
Even in the standard mortgage market, lenders want to know how many flats are in the block, how many walls they have, and whether they have lifts. Cladding has become a big issue of late as well.
It’s quite a complex one. A rough rule of thumb is that if you’re on floor six or above, then you normally need a lift. Up to four floors is fine with no lift. But I would still want to look at each individual case. I would find out as much information about the house or flat as I could and pass it to the underwriters. They will look at it, evaluate it and then they’ll come back and confirm whether, subject to valuation and survey, they are prepared to lend.
What about properties with a large amount of land, like a farm?
A farm is obviously a business and equity release isn’t normally applicable on business properties. But if you’ve got a property with generally up to about five acres, you will probably get equity release without any issue.
Over five acres, it would be discretionary. The reason for that is that you might be tempted to sell off some land or develop it for commercial use. From a lender’s point of view that could impact the value of the property. Again, this varies lender to lender.
Can I release equity on a second home?
We all know you can take equity release on your main home. So some clients want to take equity release on their main residence, and use that money to buy a holiday home with no mortgage. That’s fine.
But you can actually take equity release on a second home. You could get some funds out of it for care fees. There are rules regarding that. You might have to live in the property for a few weeks of the year yourself. You can’t have specific rental agreements on it such as putting it on Airbnb. You may need a rental agreement for a set duration on the property. But it is feasible to take equity release on a second home.
Can I take equity release on a Buy to Let property?
Yes, you can. There are providers that will consider that. It’s a bit quirky, this area of equity release, because we don’t do equity release for business purposes. So if you wanted to take equity release to purchase a Buy to Let I’d have to decline you. That’s a business investment.
However, if you already have a Buy to Let and want to take money out via equity release, you can do that. It’s also worth remembering that If you’re going to buy another house and sell the one you own, you can do equity release on the purchase. We do quite a lot of that.
We would just talk to you about your reasons for doing it and whether equity release is the right option to achieve your goals.
What about if you’ve got a lodger in your main residence, can you still do equity release?
It’s all about what agreements are in place. Having a lodger is usually a casual situation where there’s no formal agreement. And you can get equity release in that situation.
I’ve got a client at the moment with two lodgers who have lived there for quite a few years. The lodgers had to sign a waiver accepting that the owner of the property is remortgaging, and their rights don’t come before that of the equity release provider.
The provider has first charge and the only mortgage on the property. They’ve got to have all the rights, because in the unlikely event that they have to repossess, they don’t want lodgers causing legal issues.
What about annexes?
An annex is seen to be self-contained, so it’s not linked to the main property. You’ve got to have exclusive use of your main residence when you’re borrowing money on it. If you haven’t got exclusive use of your property, that doesn’t necessarily work. But if you’ve got a self-contained annex in your grounds, there’s no reason why that would be an issue. It wouldn’t prevent you from getting equity release.
Can I get equity release on specialist properties geared towards the over 55s?
It’s all about how the provider feels about selling the property. Will there be an issue selling it? With over 55s it’s a limited market, which can affect the saleability. Having said that, some providers will allow over 55, some will do over 60, some even over 65. They will draw the line when the market is too restricted and there will be few buyers out there.
Are listed buildings suitable for equity release?
There’s no specific, straightforward answer because there are various grades: I, II and then stars. I’m not an expert on listed buildings, but yes, they are considered.
The more specific the listing, the more that might affect your chances. Generally a Grade I listed building shouldn’t be a problem. I would investigate each one independently to find out the details and talk to the underwriters.
What else can affect my chances of equity release?
We’ve already mentioned the client with pylons near the property, where we were able to find a suitable lender. I went to many providers with photographic evidence of the pylon and how far it was away from the property. I got one to agree to lend.
With any questions regarding equity, there’s often no quick fix. It’s about reaching out, speaking to a specialist and letting them research your unique property type and get an indication before you start the application process.
One thing we didn’t touch on is that other properties nearby could impact your chances of equity release. For instance, if your flat is above business premises, or your property is next door to the pub, you might find lenders are unwilling.
When I use Google Earth I’m not just looking at the client’s property, I’m looking at the surroundings too. Somebody might be quite happy to buy your property next door to a garage today – but in three years time, the market might change and they might not. And that’s how providers think.
The takeaway from all of this is to seek advice. Don’t be put off because you think you’ve got a difficult property type. There are plenty of lenders out there to approach and explore.