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Annexes can be an ideal space for a home office or guests. But does having an annexe affect an equity release?

You can get equity release on properties with an annexe. Lenders will assess the construction and access to the annexe, along with anyone living there and any financial arrangement you have with them. Some lenders will value the annexe while others do not, significantly impacting the amount you can release.

When considering equity release for a property with an annexe, it is essential to know how having one affects an application and the rules on how you can use the annexe.

In this guide, you will learn:

In this guide, I will focus on the most common type of equity release, lifetime mortgages.

Can you get equity release for properties with an annexe?

All lenders can accept a property with an annexe as long as the annexe is:

  • On the same council tax as the main property
  • On the same utilities as the main property
  • Not let/rented out
  • The only annexe
  • Built of standard construction

If not, you could be restricted to certain lenders/products or have your application rejected.

Other people living in the annexe

Your annexe can be used for guests staying on a short-term basis with no need to notify the lender.

However, if a family member lives permanently in the annexe, they must sign an "occupancy waiver form".

An occupancy waiver form waives that person's rights to make a claim against the property as their own or use squatter's rights.

If you have lodgers or the annexe is let on a formal basis, it will impact your application. We will look at this in further detail later in this guide, or you can skip there now.

If the annexe is on separate utilities or council tax

There are a couple of lenders that will consider a property with an annexe if it is on separate utilities or council tax.

However, there are differences in how some lenders value the property. Some will value the entire property, including the annexe, while others will only value the main property. In both instances, they will legally charge the full title.

What do equity release companies class as an annexe?

All equity release lenders class an annexe as a self-contained living space attached to or next to an existing larger property. It may include a kitchen, bathroom, and bedroom.

For older period properties, there might also be maid quarters which can be accessed through the main property but do not have their own door. Some lenders will treat these as an annexe, while others do not.

A large shed would not be classed as an annexe. It should be a permanent structure built of standard materials.

You should fully discuss the layout and features of your property with your equity release advisor. They will then be able to research plans based on your individual property.

Which equity release lenders will accept homes with an annexe?

All equity release lenders will accept homes with an annexe, including:

  • More2Life
  • Pure Retirement
  • Canada Life
  • Just Retirement
  • One Family
  • Liverpool Victoria (LV=)
  • Scottish Widows
  • Nationwide
  • Legal & General
  • Aviva
  • Standard Life

Providing that the annexe is:

  • On the same council tax as the main property
  • On the same utilities as the main property
  • Not let/rented out
  • The only annexe
  • Built of standard construction

All of the above lenders are authorised and regulated by the Financial Conduct Authority and are Equity Release Council members.

Will an annexe be considered in an equity release property valuation?

The value of your annexe might be included within an equity release property valuation, depending on the lender. An annexe is classed as an outbuilding. Some lenders will only value the main property, with no outbuildings. Others could value the main property with one outbuilding, or some even include all outbuildings.

The valuation of your property is essential with equity release.

It is one of two main factors determining the amount you can release and the corresponding interest rate. The other being your age.

Although the lender might not include an annexe or outbuilding within their valuation, their legal charge will be secured against the whole title. This will consist of the main property, outbuildings, and all land.

If you have an annexe or other outbuildings, your equity release advisor should determine which lenders will give you the best valuation.

But because there are differences between the lenders, we suggest you use an advisory firm with access to the wider market.

Otherwise, you will get advice from a tied advice firm, which offers restricted access to lenders and products.

Let's see why this is important.

Mr and Mrs Smith approach a tied advice firm, which only offers products from one lender.

Their property has several outbuildings, including an annexe, stables and workshop.

Suppose the lender only values the main property with no outbuildings. They ignore the annexe, stables and workshop for valuation purposes. The valuation returns at £500,000.

Whereas if Mr and Mrs Smith approached an adviser with access to more products, they would be able to find a lender who would value the property as a whole, including the annexes, stables and workshop. The property would get a higher valuation of £700,000.

Not only would the valuation be higher, but the interest rate is also likely to be lower with another lender, and the amount released can be larger.

Can you be rejected equity release because of an annexe?

You can be rejected equity release because of an annexe, mainly if the annexe is:

  • Not on the same council tax as the main property
  • Not on the same utilities as the main property
  • Let/rented out
  • Not the only annexe
  • Not of standard construction

Let's look at some of these in greater detail.

Non-standard construction

The most common reason we see lenders reject applications is due to the construction type of the annexe.

As an annexe is often a liveable area with running water, kitchen, bathroom and bedroom, most lenders require it to be of standard construction.

For example, if it is built of brick and mortar with a tiled roof, it should be acceptable to the lender.

Whereas if it was fully built of timber, the lender may reject your application. The annexe must use construction methods that are safe, reliable, and have a long lifespan.

This is because, for most applicants, the sale of their property in many years will repay the equity release lender. Therefore, they wish to have security in the property value for decades.

Multiple Annexes

Some lenders may reject an application if you have multiple annexes. This is primarily to do with the future saleability of the property.

When the plan ends, lenders typically allow one year to be repaid. However, they want their money back as quickly as possible. A property with more than one annexe may limit the number of people looking to purchase the property.

Don't worry if you have a property with multiple annexes; you will still likely be able to get equity release, but there may be restricted lenders/plans available.

Can you rent out an annexe with an equity release?

Most equity release lenders allow you to rent out an annexe on an informal basis. However, whether there is through access to the main property can result in some lenders allowing, and some disallowing the annexe to be rented. You should check the terms and conditions of your equity release plan to determine if you can rent out your annexe with an equity release.

You should notify your equity release of anyone over 17 who will live with you permanently.

When renting out an annexe, most people take in a lodger. A lodger is someone who lives with you on an informal basis, paying "rent monies" but has no formal agreement, such as an Assured Shorthold Tenancy Agreement (AST).

Typically, with equity release, you cannot let any part of your property on a formal basis, meaning you have a tenant.

Someone becomes a tenant when the legal status of landlord and tenant is attained using a tenancy agreement, the most common being an Assured Shorthold Tenancy Agreement (AST).

Most equity release lenders do not allow you to have a tenancy agreement. Although this provides the most protection for landlord and tenant, it also comes with the highest risk for the lenders.

However, Aviva can consider it on a case-by-case basis.

Aviva states: "If there is more than one annexe or self-contained part within the property we will allow a maximum of two third parties (this includes family members) in each self-contained part/annexe under a Tenancy Agreement and each adult tenant must sign a Tenant's deed of consent. Existing tenants which includes family members, may need to enter into a new Tenancy Agreement on agreed terms and will also be required to sign a Tenant's deed of consent witnessed by an independent solicitor."

As you can see, Aviva is a very flexible lender in the equity release market, allowing tenants to live in the annexe and accepting properties with more than one annexe.

Finally, if you rent out an annexe for bed and breakfast or temporarily through sites such as Airbnb, you should discuss this with your equity release advisor. These rental arrangements will come with the most restrictions.

If you have further questions, why not speak with one of our qualified advisors?

Call us on 0207 158 0881 or use our online form to book your FREE consultation.

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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