Can You Get Equity Release With Bad Credit?

Learn Everything You Need to Know About Equity Release With Bad Credit in the UK. Discover How Bad Credit Can Affect Equity Release and the Steps You Can Take to Improve Your Chances of Approval.
  • Last Updated: 06 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • Equity release is possible with bad credit, but terms may vary, potentially leading to higher costs.
  • Bad credit includes missed payments, CCJs, and other credit issues, but lenders primarily focus on property value and condition.
  • Equity release can consolidate debts, including credit card debts and arrears, but may require using funds to repay existing debts first.
  • A County Court judgment or Individual Voluntary Arrangement must be settled before or using equity release funds.
  • Bankruptcy disqualifies individuals from equity release until it's discharged, and the history of bankruptcy must be disclosed to lenders.

It can be a great way for older homeowners to access equity from their property, but are you worried about equity release with bad credit

Just what’s considered bad credit, how it’ll affect your eligibility for equity release, and the steps you can take to improve your chances of approval are all important questions when considering equity release.

In This Article, You Will Discover:

    The Every Investor team has gathered up-to-date equity release information to help you make informed decisions about your retirement finances. 

    This article will provide information about equity release with bad credit and guide you through the process.

    What Are Equity Release Plans?

    Equity release, suitable for individuals aged 55 and above, offers a way to harness the equity in their home for financial gain.

    This option is particularly valuable for those needing additional funds for activities like traveling or pursuing hobbies in retirement.

    The main equity release plans are lifetime mortgages and home reversion plans.

    With a lifetime mortgage, you borrow against your home, and the loan is repaid when the house is sold.

    Home reversion, on the other hand, involves selling part of your home in return for a lump sum or regular payments, while still living there.

    What’s Considered Bad Credit?

    What’s considered bad credit can differ depending on where you live and how you’re tracking your credit. 

    In the UK, a bad credit rating’s generally considered to be a score below 580 on the Equifax scale or below 560 on the Experian1 scale. 

    Your credit score, however, is just one of many factors lenders consider in assessing your creditworthiness.

    Can You Get Equity Release With Bad Credit?

    Yes, you can get equity release with bad credit, but you may have to jump through more hoops.

    Lenders will usually check your credit score and history, but these aren’t the only equity release lending criteria.

    Equity release is a secured loan against your property, so your home’s condition and resale value are usually more important.

    Remember that equity release may not be suitable for everyone, and seeking independent financial advice is essential before making any decisions. 

    In addition to reducing the value of your estate, releasing equity from your home may also affect your entitlement to means-tested benefits.

    How Does Bad Credit Affect Equity Release?

    Bad credit doesn’t necessarily affect equity release, but it can impact the terms your are offered, potentially leading to higher costs and increased risks.

    Some lenders specialise in offering equity release to people with bad credit; however, it's important to carefully compare their terms and understand the potential risks of borrowing from these providers.

    Equity Release With Debt

    Equity release with debt is possible and can be used to consolidate your debt, but only if recommended by a financial advisor or equity release broker and after considering the potential risks and long-term implications on your finances.

    Existing debts, such as a mortgage or loans, will be taken into account by lenders when assessing your eligibility for equity release. 

    You may still be able to release equity from your property, but you may need to use the funds to pay off your existing debts first.

    Equity Release With Credit Card Debt

    Equity release with credit card debt shouldn’t be a problem, as your equity release doesn’t need to be paid back every month.

    Paying off credit card debt and improving your credit score is a common use of equity release; however, weighing the potential risks, such as higher overall costs and reduced inheritance for your heirs, is essential.

    Equity Release While in Arrears

    Equity release while in arrears is possible. However, be aware that any debt secured against your property must be repaid using your equity release funds, which may reduce the amount available for your intended purposes.

    Once this debt’s settled, you’ll receive the balance to use as planned.

    Equity Release With a County Court Judgement

    Equity release with a County Court Judgement (CCJ)2 won’t be approved until any judgement noted on your credit score’s settled.

    Rules will differ depending on the amount owed.

    A CCJ must either be paid:

    • Before you’re given access to your equity release funds.
    • Prior to the transfer of the remaining equity to your account, by your solicitor.
    • Within 6 months (generally) of your receiving your equity release income.

    Equity Release With an Individual Voluntary Arrangement (IVA)

    Equity release with an Individual Voluntary Arrangement (IVA)3 is possible if your home's equity is worth £5,000 or more, but be cautious of potential risks, such as the need to commit to paying off debts with some of the released equity.

    While equity release can help you end your IVA after 5 years, your debt repayments may extend for an additional year without sufficient equity, so consider the potential risks and long-term consequences.

    Equity Release With a Charging Order

    Equity release with a charging order4 is possible, but your lender will require that the charging order be settled with some of the proceeds.

    This is because your equity release lender will insist on being the only charge or burden against your property’s HM Land Registry5 entry.

    How Does Bankruptcy Affect an Equity Release Plan?

    Bankruptcy affects an equity release plan by rendering you unable to qualify for a plan with any lender until your bankruptcy’s discharged.

    Even after your bankruptcy’s been discharged, a record of it will remain on your file.

    Your equity release application shouldn’t be affected at this point, provided you’ve been fully released from any debts.

    Don’t forget

    Your broker and lender will still need to be informed of any previous bankruptcies, regardless of how long ago they took place.

    Can I Get Equity Release Without a Credit Check?

    No, you generally can’t get equity release without a credit check, as this is part of your lender’s assessment process. 

    However, some lenders may be more lenient than others regarding your credit history.

    There are also specialist equity release providers who offer products to people with bad credit.

    Steps to Getting Equity Release With a Bad Credit Rating

    The steps to getting equity release with a bad credit rating should start with checking your credit report and addressing any issues affecting your score. 

    An equity release advisor or broker can guide you through the equity release process and help you mitigate any possible risk. 

    Let’s take a more detailed look at the steps to obtain equity release with bad credit.

    1. Check Your Credit Report

    You can check your credit report with a credit reference agency such as Experien or Equifax.

    These agencies usually offer a free 30-day trial, giving you access to your full credit report.

    2. Speak to an Equity Release Broker or Advisor

    A broker or advisor who specialises in securing equity release for clients with bad credit will be able to advise you on ways to improve your credit score.

    A broker will also handle your application on your behalf.

    3. Find the Right Provider for You

    Find the right provider, as a client with a bad credit score may only be accepted by some equity release lenders.

    An experienced equity release advisor or broker can help you identify suitable providers, including those who specialise in offering equity release products to clients with bad credit.

    Common Questions

    Why Does My Credit Rating Matter When I Want Equity Release?

    Which Equity Release Providers Accept Bad Credit?

    What Happens if I Fail a Credit Check With Equity Release?

    Can You Be Refused Equity Release?

    What’s a Charging Order?

    Which Credit Issues Will Providers Accept?

    Does Equity Release Affect Your Credit Score?

    Does Equity Release Affect Pension Credit?

    What Credit Rating’s Considered Bad?

    I Have Equity but Bad Credit: What Are My Options Besides Equity Release?

    In Conclusion

    Equity release can be a valuable financial tool for those looking to access the wealth tied up in their homes. 

    For homeowners with bad credit, securing this type of funding may seem daunting. 

    However, by exploring various equity release products, seeking professional advice, and carefully weighing the pros and cons, finding a solution that works for your unique circumstances is possible. 

    Lenders will consider various factors, including your credit score and history, as well as other debts and financial commitments. 

    You can improve your chances of accessing an equity release plan by understanding what’s considered bad credit, addressing any issues in your credit report, and seeking advice from a financial advisor or equity release broker.

    With perseverance and a well-informed approach, obtaining equity release with bad credit and securing a more comfortable financial future is possible.

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