Equity release is a common, widely used financial product, and your chances of being accepted are high in most cases. However, there are several reasons why you might be refused or rejected when applying for equity release. These include either yourself or your property failing the lender’s eligibility criteria, or less commonly, the responsible lending criteria.
Lenders will have several eligibility criteria relating both to the borrower and to the property, that must be fulfilled before they approve the loan. These will include:
- Age – the youngest homeowner must be older than 55. It is possible to get equity release below this, but it can be more challenging, and may not be the best option for you.
- Residency – you must be a UK resident, and the property you are seeking equity release for must be your main residence.
- Credit score – equity release lenders are typically much more lenient than traditional mortgage lenders and will accept applicants with lower credit scores. However, equity release is nonetheless a large loan and will require a minimum credit score, which will vary by lender.
The most common reasons for refusal, however, are related to the property itself, and they fall into six major areas:
- Property equity – equity release lenders usually do not deal in amounts below £10,000, so you must have equity in the property that is substantially higher than this. In fact, as we discuss below, lenders usually prefer you to own the property outright.
- Property value and mortgage – This must typically be at least £70-75,000 and usually you must have no existing mortgage debt. If you do have mortgage debt, the lender will typically make you an offer based on rolling that debt into the equity release loan. This would only be possible if you have an outstanding mortgage that is a relatively low proportion of the home value – well below 50%.
- Property ownership –Additionally, lenders will typically not lend against property that is not freely sellable or that comes with occupation restrictions from a third party, such as retirement living accommodation. If you have shared ownership with a housing association, you will typically need to buy out the housing association before you can use equity release.
- Property type – Some lenders will not lend against former local authority properties, or properties of non-standard construction, such as timber-framed houses, or those with thatched roofs. The presence of asbestos or thin walls can also be a reason for rejection. Having a flat roof is another common restriction, since they often need replacing regularly.
- Property condition – Properties that require renovation to bring them up to market standards are also usually not permitted, nor are properties that are structurally unsound, for similar reasons.
- Property location – Lenders may often have restrictions against homes in flood risk areas or those adjoining commercial property, as well as those on land with high levels of pollution or contamination. Homes in very remote areas may also be more difficult, again because it might be hard for the lender to resell them.
Individual lenders will have additional restrictions they apply, such as whether or not they lend on properties in Northern Ireland, but if your property doesn’t meet these you can simply avoid that lender.
A final point to note is that the Equity Release Council (ERC), the trade body for equity release lenders, does put an emphasis on ‘responsible lending’. This means that if you indicate you intend to use the funds for a purpose that could be characterised as irresponsible, such as highly speculative investments, your application may be refused.
If all this seems complex, an ERC-approved equity release advisor can talk you through the options and help you to find a lender that is right for you.
