Can You Get Equity Release on a Leasehold Property?

Equity release has become an increasingly popular option for homeowners looking to unlock the value tied up in their properties, particularly as they reach retirement age.

It allows homeowners to access cash, either as a lump sum or in smaller amounts over time, without having to sell their home. But if you own a leasehold property, you may be wondering, "Can I get equity release on my leasehold property?".

In this comprehensive guide, we'll explore whether equity release is possible on a leasehold property, the factors that may influence eligibility, and how the process works in 2024.

Understanding Equity Release

Before delving into whether equity release is available on a leasehold property, it's important to understand how equity release works. Equity release allows homeowners, typically aged 55 or over, to access the value of their home without needing to sell it.

There are two main types of equity release:

• Lifetime Mortgage: This is the most common form of equity release. It allows you to borrow money against the value of your home, with interest rolling up over time. The loan is typically repaid when you sell the property, move into long-term care, or pass away.

• Home Reversion Plan: With this option, you sell part or all of your home to a provider in exchange for a lump sum or regular payments. You retain the right to live in the property rent-free for the rest of your life.

Equity release offers a way to free up funds to enjoy your retirement, pay off debts, or make home improvements, but it also reduces the value of your estate, which may impact the inheritance you leave behind.

It’s a significant financial decision that requires careful consideration, particularly if your property is leasehold rather than freehold.

What is a Leasehold Property?

In the UK, there are two main types of property ownership: freehold and leasehold.

• Freehold: When you own the freehold, you own both the property and the land it stands on outright. This means you have full control over the property, without the need to pay ground rent or service charges to a landlord.

• Leasehold: If your property is leasehold, you own the property itself, but not the land it sits on. Instead, you have a lease from the freeholder (also known as the landlord) to live in the property for a set number of years. When the lease expires, ownership of the property reverts to the freeholder unless the lease is extended.

Most flats and apartments are leasehold, while houses can be either freehold or leasehold. Leasehold ownership comes with additional responsibilities and costs, such as paying ground rent and service charges, as well as the potential cost of extending the lease.

Can You Get Equity Release on a Leasehold Property?

The short answer is yes, you can get equity release on a leasehold property, but there are certain conditions that need to be met. The length of the lease is one of the most crucial factors, as is the lender’s specific criteria.

Let’s look at the key factors in more detail.

1. Length of the Lease

One of the most important factors in determining whether you can get equity release on a leasehold property is the length of the lease.

Lenders generally require that a leasehold property has a minimum number of years remaining on the lease for equity release to be considered. As of 2024, most equity release providers typically require a lease to have at least 70 to 75 years remaining.

This is because the value of a leasehold property decreases as the lease term gets shorter, and lenders want to ensure the property retains enough value over time to cover the loan.

If your lease has fewer than 75 years remaining, you may need to extend the lease before applying for equity release. Lease extensions can be costly and time-consuming, but they are often essential if you want to access equity from a leasehold property.

For example:

• If your property has a lease of 80 years or more, you are likely to be eligible for equity release.
• If your lease is below 70 years, you will likely need to extend the lease to meet the lender’s criteria.

2. Property Type and Condition

In addition to the lease length, the type and condition of the leasehold property will also influence whether you can get equity release.

• Flats and apartments: Most leasehold properties in the UK are flats or apartments. Many equity release providers are happy to lend on leasehold flats, but they may impose certain conditions. For example, the property must be well-maintained and located in a building that is properly managed.

• Retirement properties: Some lenders are hesitant to offer equity release on retirement properties or those in retirement villages, as they may see these properties as having limited resale potential. However, this can vary by lender, so it’s worth seeking advice from a specialist equity release advisor.

• Listed buildings: If your leasehold property is a listed building, there may be additional restrictions on equity release, depending on the condition of the property and its value.

Overall, the property needs to be in good condition and likely to retain its value over time to qualify for equity release. Lenders will conduct a valuation to ensure the property meets their criteria.

3. Ground Rent and Service Charges

One of the key differences between freehold and leasehold properties is that leasehold owners typically have to pay ground rent and service charges to the freeholder. These costs can add up and affect your eligibility for equity release.

Some lenders may be reluctant to offer equity release if the ground rent is considered too high or if there are excessive service charges. In some cases, lenders may include these charges when calculating how much equity you can release, which could reduce the amount you are able to borrow.

It’s important to review your lease agreement to understand what costs you are responsible for and how they might impact your equity release options.

4. Mortgage-Free or Existing Mortgage?

To qualify for equity release, you must either own the property outright (i.e., mortgage-free) or be able to use the funds from the equity release to pay off any existing mortgage.

If you still have a mortgage on your leasehold property, the first step in the equity release process is to pay off the remaining mortgage using the funds from your equity release plan. This is because lenders will not offer equity release if there is still an outstanding mortgage on the property.

For example, if you release £100,000 of equity but still owe £50,000 on your mortgage, the first £50,000 of the equity release funds will be used to clear the mortgage. The remaining £50,000 would then be available for you to use as you wish.

5. Age of the Applicant

As with any equity release product, the age of the applicant plays a role in eligibility. Most equity release providers require that the youngest applicant is at least 55 years old.

If you own a leasehold property and are considering equity release, your age will also influence how much equity you can release. Typically, the older you are, the more equity you can release, as lenders calculate the amount based on life expectancy and the value of the property.

6. Lease Terms and Restrictions

Another key factor to consider is the specific terms of your lease. Some leasehold agreements contain restrictions that can affect your ability to release equity. For example, there may be clauses in the lease that limit the changes you can make to the property or that restrict certain types of financial arrangements, such as equity release.

It’s essential to review your lease carefully to ensure there are no such restrictions. If you’re unsure, it’s advisable to seek legal advice or consult an equity release advisor who specialises in leasehold properties.

The Process of Getting Equity Release on a Leasehold Property

Now that we’ve covered the factors that may affect your eligibility, let’s walk through the steps involved in applying for equity release on a leasehold property.

1. Speak to an Equity Release Advisor

The first step is to speak to a qualified equity release advisor. They will assess your situation, including the length of your lease, the condition of your property, and your financial goals. An advisor will also explain the different types of equity release products available and help you determine if equity release is the right option for you.

2. Property Valuation

Once you’ve chosen an equity release provider, the next step is a property valuation. The lender will arrange for an independent valuation of your leasehold property to determine its current market value. The valuation will take into account factors such as the length of the lease, the property’s condition, and its location.

3. Lease Review

The lender will also conduct a review of your lease to ensure it meets their criteria. This includes checking that the lease has sufficient years remaining and that there are no restrictions that would prevent equity release. If the lease is too short, you may need to extend it before proceeding with the equity release application.

4. Offer and Legal Work

If the valuation and lease review are successful, the lender will make you a formal offer. At this stage, you will need to engage a solicitor to handle the legal work. They will review the terms of the equity release agreement and ensure that everything is in order before the funds are released.

5. Completion

Once all the legal work is complete, the equity release funds will be made available to you. If you have an existing mortgage, the lender will use the equity release funds to pay it off, and the remaining funds will be paid to you.

Related:

What is an extension of tenancy agreement?

What is a Notice of Transfer Fee?

What are Conveyancing Property Searches?

Leaseholder Deed of Certificate: What You Need to Know

What are CPSE Forms?

Pros and Cons of Equity Release on a Leasehold Property

Before deciding whether to pursue equity release on your leasehold property, it’s important to weigh the pros and cons.

Pros:

• Access to cash: Equity release allows you to unlock the value of your property without having to sell or move.
• Stay in your home: With a lifetime mortgage, you can continue living in your home for the rest of your life.
• No monthly repayments: There are typically no monthly repayments with equity release, as the loan is repaid when the property is sold.

Cons:

• Reduces inheritance: Equity release reduces the value of your estate, which may impact the inheritance you leave behind.
• Costs and fees: Equity release can be expensive, with fees for the valuation, legal work, and arrangement of the loan.
• Impact of lease length: If your lease is short, you may need to extend it, which can be costly and time-consuming.

Conclusion

It is possible to get equity release on a leasehold property, but certain conditions must be met, particularly in terms of the lease length.

If your lease is too short, you may need to extend it before applying for equity release. Additionally, the type and condition of the property, as well as any ground rent and service charges, will play a role in determining your eligibility.

Equity release can be a useful financial tool for those looking to unlock the value of their leasehold property, but it’s essential to seek professional advice to ensure it’s the right option for your circumstances. Always consult a qualified equity release advisor and a solicitor who understands leasehold properties before making any decisions.