Accessing the equity in your property without having to sell or move has tremendous appeal for many, but can you obtain equity release if you have a leasehold property?

The equity release market in the UK is growing¹ as more homeowners over the age of 55 years make use of lump sum tax-free cash to achieve their financial objectives.

Owning leasehold property means that you own your house, flat or apartment but not the land it is built on, and this can affect your access to equity release.

Looking for information on how you can obtain equity release on a leasehold property?

Our equity release experts have researched the industry to bring you all the information you need on equity release and leasehold properties.

Therefore…

What is Equity Release in the UK?

For homeowners, equity release offers a route to convert home equity into liquid funds.

The minimum age for equity release typically starts at 55 years old in the UK.

This financial strategy is commonly used for repaying existing mortgages or other debts, providing financial relief and peace of mind in retirement.

Equity release typically includes lifetime mortgages and home reversion plans.

In a lifetime mortgage, you borrow against your home’s equity, repayable upon the sale of your property.

Home reversion plans involve selling a part of your home in return for a cash sum or an annuity, whilst retaining residency rights.

Learn More: Equity Release In The UK And How It Works?

What is a Leasehold Property?

A leasehold property is a type of real estate ownership where the buyer owns the building but not the land it is built on.

This ownership is for a set period, often spanning decades or centuries, as specified in the lease agreement.

This property model is unique as the land belongs to the freeholder, who grants the lease.

Leaseholders typically pay ground rent and service charges, making it a distinct option from freehold ownership, where one owns both the land and the building.

What Are the Rules for Equity Release on a Leasehold Property in the UK?

In the UK, equity release on a leasehold property is governed by specific rules.

The lease must have at least seventy-five to ninety years left on it for most providers to consider an equity release plan.

This condition is in place to ensure that the property will still have substantial value when the equity release plan ends.

Additionally, the property must be your primary residence and you must be at least 55 years old.

Furthermore, if your property is leasehold, you must obtain the freeholder’s consent before proceeding with equity release.

This ensures that the freeholder is aware of any changes to the financial status of the property.

Also, while it is not a rule, it is recommended that you take independent legal advice to understand the implications of equity release on a leasehold property.

This helps to ensure that you are making a well-informed decision.

Can I Obtain Equity Release on a Leasehold Property?

Yes, it is possible to obtain equity release on a leasehold property.

The lender will factor in other considerations before approving the lifetime mortgage or home reversion plan. 

The lender will need to consider any service fees, ground rent, sell-on provisions, and ‌the number of years left on the lease.

The leasehold property must be your primary residence and have a lease with at least seventy-five years remaining². 

Most lenders will require you to extend the lease, ranging in length from ninety to one hundred and twenty years³. 

And you will need to pay for legal counsel and services to have your current lease extended before applying if it is too short.

Important to note…

Even though you can deduct application fees from your loan amount, it may still be possible to extend the lease using an equity release loan if you can not pay the costs. 

The lease extension process can take from two to twelve months, and you will not be able to apply for a loan until the lease has been formally extended.

Can I Obtain Equity Release on a Leasehold House?

Yes, it is possible to obtain equity release on leasehold homes⁴; however, each provider will have it’s own set of criteria to abide by.

The equity release lender will need to analyse the lease agreement and determine whether the remaining ‘term’ of the lease is adequate.

Can I Obtain Equity Release on a Flat?

You can obtain equity release for a flat, but as it is a leasehold property, you must adhere to certain leasehold conditions.

These conditions include having a leasehold agreement with at least seventy-five years remaining⁵.

Lenders will have guidelines on the kinds of leasehold flats that they will ‌lend on. 

Equity release is possible for a variety of flats. The lender will request a copy of the lease agreement to confirm that it satisfies their lending requirements.

Some lenders will give you equity release for ex-council apartments. However, the lender will also do their own investigations to determine eligibility.

Because of the various restrictions and fees associated with retirement flats, this lending inquiry may be a little more difficult. 

However, there are lenders out there who will ‌consider lending on homes with age restrictions.

How Does Equity Release Work on a Leasehold?

The procedure for releasing equity on a leasehold starts with the equity release lender valuing the property.

The lender will also examine ‌the deeds⁶ and inquire about the leasehold in order to determine whether equity release is workable.

The lender must determine whether there is enough equity in the leasehold property.

The lender will then make an offer with any terms if you meet the equity release qualification.

The legal procedure can start as soon as the equity release offer is approved.

Is Equity Release Available on All Flat Types?

Equity release is available on certain types of flats.

Lenders have different criteria for approving different types of properties.

More information…

Can I Obtain Equity Release on a Purpose Built Flat?

Equity release is available on purpose-built apartments

A purpose-built apartment building differs from a house partitioned into two distinct homes. 

Most lenders demand that the apartment has an elevator if it is over four stories high, besides meeting other loan requirements.

Can I Obtain Equity Release on Ex-Council Flats?

Only a few lenders offer equity release on former council apartments. 

Most lenders will require more details, such as the number of council-owned apartments in the apartment building.

Can I Obtain Equity Release on a Studio Flat?

A studio flat or apartment is eligible for equity release. 

Sometimes one bedroom apartments are mistakenly referred to as studios.

Studio apartments are generally self-contained living spaces that include everything in one room except a bathroom which is separate.

Why Lenders Will Not Allow for Equity Release on Certain Properties

Lenders are concerned with the eventual selling and recovery of their investment.

Unless they are simple to resolve, any circumstances that cast doubt on their capacity to re-sell will raise a red flag for them. 

A property ‌in a flood zone⁷, one that is close to high-voltage power lines, or a house with asbestos⁸ are all examples of safety issues that may raise red flags.

Other bad characteristics include a home in an unappealing neighbourhood, one with single-skin walls, or a property with commercial neighbours. 

A broker could offer advice on how to handle some of these problems prior to the application process.

Properties That Do Not Qualify

There are properties that do not qualify for equity release and some that lenders are stricter with.

More information…

• Park homes⁹: Because the property is a mobile home on a protected site, it is ‌out of the ordinary, as the homeowner does not own the land or have a leasehold over it. This makes equity release on a park house impossible because the lender has nothing to use as collateral for the loan.
• Properties with a Shared Ownership structure: To qualify for equity release, a borrower must own the entire property outright. You would not be able to obtain equity release on a shared ownership property because you only own a section of your property, and either a developer or local council is a co-owner.
• Business properties: You could not take advantage of equity release if you use property, even partially, for any commercial endeavours. This includes property that is used as a hotel, leased to long-term renters, or offered for rent on AirBnB.
• Vacation homes: One requirement for equity release is that the property from which you are withdrawing the funds must be your primary residence. Although you can utilise the money to help you buy a second property, a vacation home or even a second home would not meet the requirements.
• Studio and basement apartments: Unfortunately, typically, lenders have an aversion to these types of properties in relation to equity release schemes.

How Do I Know if My Property is Leasehold or Freehold?

Your title deeds contain the information needed to determine if your property is leasehold or freehold. If you are unsure, ask your lawyer or an equity release advisor to look at it for you.

You can obtain a free copy of your title deeds if you are unsure, to see if your property is registered as leasehold or freehold with the land registry.¹⁰

What Information Will I Need to Provide Regarding My Leasehold Flat?

If you want to apply for equity release on a leasehold property, like a flat, you will need to furnish your supplier with a few extra pieces of information.

The service fees payable for…

• Maintenance, repairs, and insurance.
• Central heating, elevators, porters, lighting, and cleaning of communal spaces (if offered).
• The costs of management service rendered by the landlord or a qualified managing agent, as well as contributions to a reserve fund, may be included in the charges.
• Your building insurance. If the management company covers this in your service fees, you will need to obtain a copy.
• Details of your landlord’s ground rent. This is a requirement of your lease‌ for using the land on which your property is situated, and your lease will specify this.
• Details of the sell-on fees, the “exit” or “transfer” fee you or your beneficiaries will need to pay when you sell or rent out the property. This is usually a percentage of the property market value at the time of the sales part of the leasehold agreement.

How Many Years Do I Need to Have On My Lease to Obtain Equity Release?

Each lender will have a different minimum leasehold tenure requirement for equity release. 

You will typically require a lease with at least seventy-five years remaining. Some lenders could demand a lease term of at least ninety to one hundred and twenty-five years, depending on your age¹¹.

Even if the leasehold does not have the required number of years remaining, you could occasionally still get the option to take up a lifetime mortgage. 

However, you may have a lower loan-to-value ratio (LTV) and / or a higher interest rate.

What if My Lease Length Is Too Short?

If your lease is too short, you must first extend the leasehold to qualify for equity release. 

When you extend your lease, you will need to pay appraisal and equity release solicitor fees and legal fees¹².

There is new legislation about to take effect that will enable leasehold property owners to increase their lease by up to nine hundred and ninety years without having to pay any ground rent¹³.

Which Lenders Will Consider a Lease of Less Than 100 Years?

Some lenders will consider a lease of less than one hundred years with differing criteria.

Lenders may consider the sum of the age of the youngest borrower, plus the number of years remaining on your lease¹⁴, and if this is at least one hundred and sixty, you could qualify for equity release.

For example, if the youngest borrower is seventy years old, then the lease must have at least ninety years left on it as seventy plus ninety equals one hundred and sixty.

Can I Use Equity Release to Extend My Lease?

You can apply for equity release and lease extension simultaneously if you can not pay for a leasehold extension¹⁵. 

The equity release firm will pay the leasehold extension fees, and after it grants the leasehold, subtract the fees from your loan balance.

You will not repay the remaining loan balance until it approves the leasehold. 

The leasehold application process can take from two to twelve months¹⁶, which means you will need to wait the same ‌time to receive your loan.

Common Questions

In Conclusion

If you want to obtain equity release on a leasehold property, lenders will factor in various considerations before approving a lifetime mortgage or home reversion plan. 

Lenders will consider any service fees, ground rent, sell-on provisions, and ‌the number of years left on the lease.

The leasehold property must be your primary residence and have a lease with at least seventy-five years remaining. 

Some lenders will require that you extend your leasehold, which you can do simultaneously when applying for equity release. 

Leasehold properties that qualify for equity release include houses and flats or apartments. 

If you are unsure whether your property is freehold or leasehold, your title deed will contain this information.

So, the good news is that provided you meet the criteria above, you can obtain equity release on a leasehold property.