Equity Release plans are an excellent solution to many financial needs; however, it is essential to know that there are reasons why a lender could decline your application.
You can be refused equity release if your property or personal circumstances do not meet lending criteria. This includes property location, value, construction type, and condition. Applicants must be at least 55 years old and have the permanent right to reside in the UK. Applications must contain truthful information.
Although there are several reasons why you could be refused equity release, there is a wide range of lenders and products available, so we are often able to find solutions for clients who have previously been declined.
Let's explore some of these factors in greater detail and what to do if you have already been refused equity release.
Why can you be refused Equity Release?
Firstly, I want to explain why equity release lenders may reject your application.
Any refusal always relates to one of two reasons:
- protection for the lender and, most importantly,
- protection for yourself.
With traditional mortgages, the balance owed to the lender will reduce, or stay the same, each month. However, with an equity release plan, the lender will not receive any mandatory payments until you pass away or move into a care home. Therefore, the balance owed could increase as time passes.
Lenders prefer offering their money against properties that sell quickly and hassle-free. That is why your property information is essential for any equity release lender, and they consider all aspects.
Equity Release lenders also have requirements that fall under "responsible lending." Simply, the lender assesses your use of funds to ensure there is as little risk to you as possible.
For example, if you stated that you were raising funds to invest in cryptocurrency (e.g., Bitcoin), the lender will likely refuse your application, as there is high risk with investing in such markets.
Can my property be refused equity release?
An equity release lender can refuse to lend against your property. The property must meet certain conditions, known as property underwriting criteria, including property location, value, construction type, and condition. Properties outside of lending criteria are the most common reason for an unsuccessful application.
The construction of your property is critical for all equity release lenders to ensure that it will stand the test of time and can repay them at the end of the plan.
Most properties built in the UK are of standard construction (brick and mortar, with a tiled roof); however, many other construction types exist, including:
- Metal framed
- Spray foam insulation
All these types of property could potentially be lent against, but it will depend on the specifics of your home.
If your property is of non-standard construction, I suggest contacting one of our advisors on 0207 158 0881 to discuss your property in greater detail.
As part of your equity release application, a surveyor will inspect your property, and it will be on this basis that the lender's offer is made.
The surveyor will consider not only the construction but also the condition of your property, including signs of:
- Structural movement
- Underpinning or previous structural repair
If the surveyor is aware of any potential defects to your property, they will detail it within their valuation report.
The lender will then assess whether they are happy to continue with the application, request further information (such as a damp and timber report), or decline the application.
Can equity release be refused because of your property's location?
Equity release lenders can refuse to lend based on your property location. They will consider the postcode and country of your property, which can impact the amount they are willing to lend. They will usually accept the location if your home is in the mainland UK.
However, they will also assess the area in which you live and neighbouring properties for anything which could make your property harder to sell. This includes proximity to:
- Shops / commercial buildings
- Industrial areas
- Railway lines
- Mine shafts
- High-voltage electricity pylons
A good example is if you lived next door to a loud pub - this could affect the saleability of your property and maybe a reason for an equity release application being declined.
The lender will rely on the surveyor's comments, so it is always best to discuss your concerns with your equity release advisor before applying. This will allow them to best research a plan which could be acceptable.
Can you be refused equity release if you live in a flood-risk area?
Equity release lenders accept properties located in flood zones one and two. With flood zone three, restrictions are placed on the number of equity release plans available.
More importantly, the lender considers if there has been any recent flooding in your home and whether you have made any previous claims for flood damage.
If your property is in a high-risk flood zone, don't panic. In recent years many lenders have made their criteria more flexible, and options should be available.
Tip: You can check your property's flood risk by clicking the following links:
Do I need building insurance for equity release?
You must have buildings insurance in place for all equity release plans; if you do not, you will need to organise it as part of your equity release application.
The lender will need to receive a copy of your buildings insurance policy documents to ensure that the sum insured is sufficient and assess any notes of previous claims.
Is there a minimum and maximum property value for equity release?
The minimum property value for an equity release is £70,000. There is no maximum property value for equity release; however, loan amounts are typically restricted from £10,000 to £2,000,000. For larger loans, applications will be assessed on a case-by-case basis.
Tip: If you aren't sure about your property's value, you can obtain an estimate from Zoopla.
Can properties with spray foam insulation be refused equity release?
Equity release lenders are refusing more and more properties with spray foam insulation, but there are factors to consider.
Properties with spray foam insulating the roof are only acceptable to equity release lenders if the spray foam was installed at the time the property was constructed. If spray foam insulation is installed into cavity walls, equity release lenders will refuse applications if the treatment has/will cause damage.
If you have spray foam insulation applied to the inside of your roof, you may be able to remove the spray foam and have an application accepted.
However, we recommend that a specialist carries out this, as you may also need to provide a certificate to prove that the spray foam has not caused any lasting damage to your property. Plus, there are upfront costs to removing the spray foam, which does not guarantee that your application is accepted.
Alternatively, if you do not wish to remove your spray foam, you may wish to consider a Home Reversion plan. Spray foam insulation is acceptable to home reversion providers; however, this is usually a last resort, as it will involve selling all/part of your home to the reversion provider.
We have seen increases in the number of properties with spray foam insulation applied, and it is becoming a massive problem for clients wishing to take an equity release. This is compounded by the roll-out of government-funded schemes to reduce energy bills, resulting in properties becoming unmortgageable.
If you have been declined equity release because of spray foam insulation, speak with one of our advisors on 0207 158 0881 to discuss your options.
Can you be refused equity release because of planned spending?
You can be refused equity release because of how you plan to spend the funds. Equity Release lenders have requirements that fall under "responsible lending". Therefore, plans to invest in high-risk markets (e.g. Bitcoin) could result in your application being denied.
This is because any investment that will outperform the interest charged against your equity release plan is likely to be high risk.
While you may have seen TV adverts stating you can use the funds however you wish, there are restrictions for your protection.
Can you be refused equity release if you plan to make changes to your property?
Making improvements to your property and garden is always acceptable for decoration purposes.
However, if the improvements require structural changes or planning consent, you will need to provide additional information, including:
- Planning permission
- Building regulations
- Builders quotes
Plus, equity release lenders will only be able to value your home on the day the surveyor visits. Therefore if you are planning a large extension which could add value to your home, the equity release valuation will be based on your home without such works being complete.
Finally, when the surveyor visits your home, they will need to ensure that your property is habitable, including having a functional kitchen. We have seen instances where clients have run out of money mid renovations, and lenders cannot release funds until the works have been completed.
If you are planning works on your property, you should discuss them with your equity release advisor before construction begins.
Does bad credit mean that you can be refused equity release?
Equity release lenders can refuse applications where undisclosed bad credit is found. You must discuss bad credit with your equity release advisor to ensure that you are placed with a lender who accepts your circumstances.
If you have bad credit, you will still likely be able to get equity release. However, you should disclose any of the following:
- Bankruptcy (Discharged or in progress)
- County Court Judgments (CCJs), including Charging Orders
- Individual Voluntary Arrangement (IVA)
- Debt Management Plans
- Arrears and missed payments
Equity release lenders run credit reports on all applicants; therefore, I suggest you run a credit report on yourself before applying.
I have used ClearScore for years and am happy to recommend them to you. Visit www.clearscore.com to receive your free credit report.
Can you be refused equity release because of low income?
You cannot be refused equity release because of low income. Unlike many other financial products, equity release is not affordability assessed, meaning the lenders do not require details of your income. Instead, the lenders calculate the amount you can release using the youngest homeowner's age and property value.
You might find yourself in the same boat as many of our clients, "asset rich, cash poor". The good news is that you qualify for equity release with low income.
However, although the lenders will not ask for your income information, your advisor will. This is to ensure they recommend the most suitable course of action and don't put you in a worse financial position following taking any equity release.
If you are entitled to claim any means-tested benefits (those based on your income and savings), your eligibility to claim them could be impacted by taking an equity release. This includes such benefits as:
- Pension Credit
- Council Tax Reduction
- Universal Credit
If you receive means-tested benefits, you still qualify for equity release. However, your advisor will need to consider any reduction in the amount you can claim and for how long it will be affected.
I have written an article that further explores the impact equity release has on benefits which you can read here.
Can I be refused equity release because of my age?
You can be refused equity release if you are under 55 years old, and some plans require you to be aged 60 and above. Importantly, this applies to all applicants, and any homeowner must be an applicant.
There are no upper age limits with equity release applications. However, you will find that the maximum amount you can borrow will top out once you are in your 80s.
To explore how your age impacts an equity release, you can read my guide on equity release age limits.
But what if you are over age 55, but your partner is under 55?
If one property owner is under 55, with the other over, you can apply for equity release as a sole applicant. However, the homeowner under 55 must relinquish property ownership.
This will involve a solicitor updating the title deeds as part of your equity release application.
Of course, this won't be the best solution for everyone, so discussing the consequences with your equity release advisor is essential.
What can I do if I am refused equity release?
If you previously submitted an equity release application and were declined, not all hope is lost.
As all equity release lenders have their own criteria, one lender may decline your application which is acceptable to another.
Different equity release firms and advisors have access to various lenders, and some are restricted to certain ones. We refer to this as "tied" advice.
Here at Money Release, we have unrestricted access to the equity release lenders and products. This is commonly referred to as "whole of market" advice.
Therefore, we might have access to a lender that your previous advisor didn't.
I don't want to promise anything, but we might be able to help you, even if you have previously been advised that there is no option.
Important: It is vital to tell your new equity release advisor if you have previously had an application refused. This will help eliminate going down the same path you had previously.
Lending criteria are also forever changing. Therefore, a reason for a lender previously declining your application could be acceptable now.
Example: Properties with 100% flat roofs were previously refused. However, now multiple lenders accept such homes.
If, after all, equity release isn't an option, there may be other suitable solutions to help you achieve your financial goals. I have written an article on alternatives to equity release, which may prove useful.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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