In our credit happy, loan reliant society there has to be some pretty strong reasons to be turned down for equity release, particularly if you have an experienced financial adviser on board. However, there are certain key criteria which providers will insist upon, which is both in theirs and your interest to comply with.
Most lenders will have a minimum age policy and although this will vary, in general most providers require their borrowers to be no younger than 55-60. Due to the very nature of an equity release plan, financial advisers will recommend that they are only suitable for the retired or elderly people. Providers will refer to mortality tables produced by the Institute and Faculty of Actuaries in order to calculate the estimated term. Because providers are loaning money that is not returned until a person’s death, it is not in their interest to lend money to someone with too long a life expectancy. If you intend to take out an equity release plan with your spouse, the lender will base the plan on the younger persons age. But what happens if your circumstances change and you have already taken out a plan, for example if you marry/remarry? Equity release products are designed to be lifelong plans and therefore if your circumstances do change you may be restricted on what, if anything can be changed in the policy. The best course of action is to talk to a professional who will have experience in how to deal with it.
If you do not currently have buildings insurance, then most providers will not want to loan you any money. They will require you to be insured for the full re-instatement value, which should be index linked so as to keep in line with inflation. If you intend to take out equity release on your home, the cost of taking out buildings insurance beforehand is pretty marginal.
Some equity release providers will take into account a borrower’s personal health and if they do have a pre-existing medical condition they will take this into consideration. If the medical condition is likely to reduce life expectancy, providers will usually increase the amount they are prepared to lend as it will be expected that the repayment time will be sooner. It is essential that you are completely honest about any medical condition you have, as it will invalidate your plan if any fraudulent information is found out after your death. Leaving your loved ones with a nasty financial mess to clear up.
One key factor that all providers will insist upon is that you own your own home. Many will also base their decision upon how much your home is valued at and this will vary between lenders. They may also send out a surveyor to assess whether your house is in a fit state. If it is deemed that your house does require essential maintenance work, it does not necessarily mean that you will be refused equity release. More likely, the surveyor will include a ‘retention’ for this work and if it is under £5,000 it is highly probable that you will be able to find a provider who will grant you equity release.
One grey area, which again will vary between lender, is whether they will allow equity release on buy to let properties, holiday homes and homes with a limited remaining lease. Remember, to be completely honest with your lender and if they give their permission for any of the above be sure that you know their complete terms and conditions. If a buy to let property has existing tenants, it is likely that the provider will expect the tenants to sign a six month assured short hold tenancy agreement. Likewise if you want to take out equity release on a holiday home, it is probable that there will a condition that the lets are for 4 weeks or less, otherwise there may be a reduction in the maximum amount they are willing to lend you.
As with anything concerning personal financial matters, it is highly recommended that you enlist the professional help of an independent financial adviser and do your research first.