Do Leasehold Properties Qualify for Equity Release?

Equity release on a leasehold property is possible, but the lease term must usually exceed a certain number of years to ensure the arrangement's security.
  • Last Updated: 11 Apr 2024
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Francis Hui
Can You Get Equity Release on a Leasehold Property? Discover the Circumstances Under Which You Can Release Equity on a Leasehold Property and Find Out What Information You will Need to Apply. It's All Here.
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Key Takeaways
  • Like freehold properties, leaseholds can unlock your property’s value while you stay put.
  • Equity release is possible on leasehold properties in the UK, provided that the lease term remaining is usually over 75 years, you have freeholder approval, and you’ve met specific criteria related to age, property value, and lease conditions.
  • Be aware of risks like diminished estate value, impact on benefits, and complications if the lease expires in your lifetime.

Accessing the equity in your property without having to sell or move has tremendous appeal for many, but can you get 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 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’s built on, and this can affect your access to equity release.

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

In This Article, You Will Discover:

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

    Here’s what we found.

    What is Equity Release in the UK?

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

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

    This financial strategy is commonly used for paying off 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, while 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’s 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 75-90 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’s recommended that you take independent legal advice to understand the implications of equity release on a leasehold property.

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

    Can I Get Equity Release on a Leasehold Property?

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

    The lender will weigh 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 75 years left on it2

    Most lenders will require you to extend the lease, ranging in length from 90 to 120 years3

    And you’ll need to pay for legal counsel and services to have your current lease extended before applying if it’s 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’t pay the costs. 

    The lease extension process can take from 2 to 12 months, and you will not be able to apply for a loan until the lease has been formally extended.

    Can I Get Equity Release on a Leasehold House?

    Yes, it’s possible to obtain equity release on leasehold homes4. However, each provider will have its 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 Get Equity Release on a Flat?

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

    These conditions include having a leasehold agreement with at least 75 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’ll ‌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.

    Here’s more information.

    Can I Get 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 2 distinct homes. 

    Most lenders demand that the apartment have a lift if it’s over 4 stories high, besides meeting other loan requirements.

    Can I Get 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 Get Equity Release on a Studio Flat?

    A studio flat or apartment is eligible for equity release. 

    Sometimes 1-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 Won’t Allow for Equity Release on Certain Properties

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

    Unless they’re simple to resolve, any circumstances that cast doubt on their capacity to resell 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’ll 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 Don’t Qualify

    There are properties that don’t qualify for equity release and some that lenders are stricter with.

    Here’s more:

    • Park homes9: Because the property is a mobile home on a protected site, it’s ‌out of the ordinary, as the homeowner doesn’t 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 wouldn’t 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 couldn’t 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 rented out on AirBnB.
    • Vacation homes: One requirement for equity release is that the property from which your 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 wouldn’t meet the requirements.
    • Studio and basement apartments: Unfortunately, lenders’ typical aversion to these types of properties carries over to their equity release schemes.

    How Do I Know if My Property’s Leasehold or Freehold?

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

    You can get a free copy of your title deeds if your are unsure to see if they registered your property as leasehold or freehold with the land registry10.

    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’ll 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’ll 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 have 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 Get Equity Release?

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

    You will typically require a lease with at least 75 years remaining. Some lenders could demand a lease term of at least 90 to 125 years, depending on your age11.

    Even if the leasehold does not have the required number of years left, 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’ll have to pay appraisal and equity release solicitor fees and legal fees12.

    There is new legislation about to take effect that’ll enable leasehold property owners to increase their lease by up to 990 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 100 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 160, you could qualify for equity release.

    For example, if the youngest borrower is 70 years old, the lease must have at least 90 years left on it as 70 plus 90 equals 160.

    Can I Use Equity Release to Extend My Lease?

    You can apply for equity release and lease extension simultaneously if you can’t 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 won’t repay the remaining loan balance until it approves the leasehold. 

    The leasehold application process can take from 3 to 12 months16, which means you’ll have to wait the same ‌time to receive your loan.

    Common Questions

    What is the Difference Between a Freehold and Leasehold Property?

    Can You Get Equity Release on a Grade 2 Listed Building?

    What Criteria Might Be in Place to Get Equity Release on a Flat?

    Can I Avail Equity Release on a Leasehold Property in the UK?

    What Are the Requirements for Equity Release on Leasehold Property?

    Are There Special Conditions for Equity Release on Leasehold Houses?

    How Does Equity Release Work on Leasehold Property?

    What Are the Risks of Equity Release on Leasehold Property?

    In Conclusion

    If you want to obtain equity release on a leasehold property, lenders will weigh 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 75 years left on it. 

    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 your 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 get equity release on a leasehold property.

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