What Does Releasing Equity on a Freehold Flat Involve?

Equity release on a freehold flat is possible, but lenders may have specific criteria regarding property type and construction to ensure investment security.
  • Last Updated: 17 May 2024
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Francis Hui
What Is the Process for Equity Release on a Freehold Flat in the UK? Learn About the Process and Considerations Before Releasing Equity on a Freehold Flat. Get All the Information You Need Here.
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Key Takeaways
  • Equity release on a freehold flat involves a property valuation, consulting with a financial adviser, choosing a plan, and completing legal work, with the best plan varying based on the homeowner’s age, health, property value, and financial needs.
  • Equity release plans allow residents to remain in their flats without the requirement to move, except in circumstances of death or moving into care—all while accessing their property’s equity as a lump sum or ongoing income.
  • Key risks include potential estate value reduction, effects on means-tested benefits, and the possibility of falling into negative equity.

In This Article, You Will Discover:

    Equity release plans were once only available to homeowners who had mortgages, but does that now include freehold flats?

    This article will explore equity release on freehold flats and how it could be an attractive option to help you fund your retirement without having to sell up or move out of your home.

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    Equity Release for Freehold Flats

    What does Equity Release entail, specifically for Freehold Flats?

    What Does It Mean To Release Equity?

    For homeowners above 55, equity release offers a means to extract financial value from their property.

    This option is attractive for enhancing retirement income, addressing financial needs, or planning for future expenses.

    The equity release sector primarily offers lifetime mortgages and home reversion plans.

    In a lifetime mortgage, you borrow against your home’s value, with the loan and interest repaid upon your home’s eventual sale.

    Home reversion involves parting with a portion of your home’s ownership for a cash payout or a series of payments, while retaining the right to live there.

    Learn More: How To Release Equity From Mortgage

    What distinguishes a Freehold Flat from other property types?

    What is a Freehold Flat?

    The word “freehold” refers to a property that you own along with the land on which it’s built1.

    In case your are wondering:

    This is the most common way in which stand-alone homes are owned. There is no ground rent or other charges to pay with the ownership of this type of dwelling.

    However, ownership of a freehold flat takes a bit of a different shape.

    It’s important to be aware of the two ways in which one can be involved in the freehold of a flat.

    Leasehold & a Share in the Freehold

    Flats are mostly sold on leasehold. This is a form of home ownership because it lasts much longer than rental contracts.

    When you buy a flat with a leasehold agreement, it may come with a share of the freehold.

    This means

    You either have shared ownership of the land together with other leaseholders in the building, or you hold a share in a company that owns the freehold.

    As such, you play a part in decisions about the management of the grounds and determining things like service charges.

    How Does Equity Release on Freehold Flats Compare to Leasehold Properties?

    Equity release on freehold flats differs significantly from that on leasehold properties.

    With freehold flats, you have outright ownership of the property and the land it stands on, providing more control and fewer restrictions compared to leasehold arrangements.

    This can impact the eligibility and terms of equity release products.

    Freehold Flat With No Lease

    It’s rare, but you could have ownership of a flat and own a share of the land it’s built on.

    For example, this could happen if you and your brother inherited a house together and split it into two apartments.

    What Is the Process for Equity Release on a Freehold Flat in the UK?

    Equity release on a freehold flat in the UK involves converting the value of your property into a lump sum or regular income stream while retaining ownership.

    To initiate the process, you’ll need to consult with a financial advisor, choose a plan, have your property valued, and apply through an equity release specialist.

    Keep in mind, the age limit, usually 55 or over, the value of your property, and your personal circumstances determine your eligibility.

    Upon successful application, your solicitor will review your offer and deal with the legal process.

    Repayment of the loan typically occurs when the homeowner passes away or moves into long-term care.

    One unique aspect of equity release is the ‘no negative equity guarantee’.

    This ensures that you’ll never owe more than your property’s value, protecting you from a declining housing market.

    Always remember, equity release can impact your eligibility for means-tested benefits and inheritance, thus advice from a professional is essential.

    Is it possible to secure Equity Release on a Freehold Flat?

    Can You Get Equity Release On A Freehold Flat?

    The short answer is yes, if you have enough equity in your property, you can get an equity release plan for a freehold flat.

    However, you’d need to own the leasehold as well.

    This can help you fund your retirement or achieve other financial objectives without having to sell up and move out.

    There are two ways to do this.

    Let’s have a look:

    • You could take out a lifetime mortgage that would provide you with a lump sum or drawdown facility while retaining ownership of your home. You’d continue living in your home until your passing or entering long-term care.
    • You could get a home reversion plan where you sell all or part of your home to a provider for a lump sum or drawdown facility while being able to live in it for the rest of your life.

    The benefits of using either method include access to funds without having to move out of your property.

    It’s worth consulting a leading adviser before committing because some plans come with charges that may not be obvious at first glance and could end up costing more than expected.

    But if your are eligible, this scheme could make sense compared to alternatives, such as downsizing or moving into social housing, as these may be unsuitable for your needs now or in the future.

    What are the advantages associated with releasing Equity on Freehold Flats?

    Benefits of Equity Release on Freehold Flats

    The benefits of getting equity release on a freehold flat are many and come down to what your personal circumstances are.

    These days, most people who release equity opt for lifetime mortgages rather than home reversion plans.

    One thing you may like about a lifetime mortgage is that you retain ownership of your residence until you either pass away or move to long-term care.

    This means you do not have the hassle of selling it yourself.

    Also, equity release plans are typically only repaid at the end of the loan term. This means you can access funds without having to worry about monthly repayments.

    Importantly

    The funds you can access with equity release are tax-free.

    However, depending on how you handle the funds, you could incur a tax liability – so consult with an equity release adviser to avoid this.

    Another advantage is that you do not have to worry about ground rents or service charges affecting your eligibility for equity release in the future, as could be the case with a leasehold property.

    What Are My Equity Release Options for Retirement Properties in the UK?

    For retirement properties, you have specific equity release options tailored to your needs.

    Depending on your circumstances, you might explore lifetime mortgages or home reversion plans designed for retirees.

    These options offer flexibility and financial security during your retirement years.

    Are there any potential drawbacks to consider with equity release on freehold flats?

    Are There Any Drawbacks?

    Yes, there are a few drawbacks to these schemes, and you should consider them against the benefits.

    To begin with, releasing equity will affect the size of the inheritance you leave your loved ones.

    Moreover

    Equity release is a lifelong commitment, so if you decide that you want to settle the loan early, this can result in early repayment charges.

    Another thing to note is that once you’ve taken out an equity release plan, you cannot take out any other loans using your home as security.

    Finally, bear in mind that set-up fees are involved in the process of getting equity release.

    Am I Eligible for Equity Release if I Have a Share of Freehold?

    Yes, if you own a share of the freehold and want to release equity, this is possible.

    However, some restrictions may be worth noting before committing.

    Let’s explain:

    For example, you cannot take out an equity release plan just on your share of the property because it needs to cover 100% of the property.

    If you co-own the property with one other person, you’ll have to take out joint equity release.

    But if there are over two owners on the title deed, they will have to be stricken from the title deed before you can get equity release.

    Remember that if your are not able to obtain equity release on a freehold flat, there are alternatives available, such as downsizing or moving into social housing.

    These may work out cheaper over time than paying monthly fees for a different type of scheme.

    Is Equity Release Possible without a Lease on a Freehold Flat?

    Yes, if there is no lease in place, you can still get Equity Release on a Freehold Flat.

    However, this may not always be the best option because your rights as an occupier will change.

    It could lead to complications later down the line when it comes to moving out of that property.

    This is especially true if other people live with you who need caregiver assistance or support from family members living locally.

    It’s strongly advisable to discuss all options in detail with relevant parties before making a decision.

    This includes understanding their preferred tenancy duration—typically, contracts covering six months or longer are more favourable.

    Another consideration worth mentioning here is whether anyone else is living with you, such as a co-owner of the property.

    If this is the case

    It’s uncertain that another party will readily assume your share for equity release, considering the complexities of these schemes.

    Hence, this approach may not be suitable for everyone or every situation.

    What factors should be taken into account before pursuing equity release on a freehold flat?

    Considerations Before Getting Equity Release on A Freehold Flat

    There are important considerations to keep in mind before releasing equity on a freehold flat.

    First, think about whether there will be any residual costs attached.

    Some plans could come with additional charges that may not be obvious at first glance but could cost more than expected in the long run.

    Moreover

    Another thing to consider is whether children live with you or are beneficiaries of the property.

    Although these plans may be more cost-effective in the long run, they may not be feasible if other family members require care from someone nearby.

    So make sure everything has been discussed before making a final decision on what to do next.

    If this means that equity release is not right for your Freehold Flat, then do not despair as there are alternatives worth considering, such as downsizing.

    How Does Equity Release on a Freehold Flat Affect Inheritance Planning?

    Equity release on a freehold flat can have implications for your inheritance planning strategy. By releasing equity, you may reduce the value of your estate, potentially impacting what you leave behind for your beneficiaries. It’s essential to consider this aspect carefully and seek advice to mitigate any unintended consequences.

    What Legal Aspects Should I Consider for Equity Release on a Freehold Flat?

    When considering equity release on a freehold flat, it’s crucial to delve into the legal aspects involved.

    You need to understand any restrictions or implications related to your property’s freehold status.

    Consulting legal experts can clarify complexities and ensure a smooth process.

    How does the equity release process unfold for freehold flats?

    What is The Process For Equity Release On Freehold Flats?

    The process for equity release on freehold flats may vary depending on the provider and the product you choose.

    Here are some general steps that you may need to follow:

    • Check your eligibility: Before applying for equity release, you need to make sure that you meet the equity release requirements set by the provider. This may include your age, health, property value, and lease length.
    • Get independent advice: Equity release is a big decision that has implications for your future finances and inheritance. That’s why you should always seek independent financial advice from a qualified and regulated adviser before taking out any equity release product.
    • Apply for equity release: Once you have chosen a provider and a product, you can apply for equity release by providing personal, financial, and property details. You will also need to consent to a property valuation. The provider will then assess your application and make you an offer if your are approved.
    • Legal Process: After receiving an offer, a solicitor will help with legal formalities. They will ensure you understand the plan’s terms, handle the conveyancing process, and coordinate with the provider’s legal team.
    • Receiving Funds: Once the legal process is completed, the provider will release the funds to your solicitor, who will then transfer them to your bank account or use them to pay off any existing mortgage or debts.

    The process for equity release on freehold flats may take several weeks or months to complete, depending on the complexity of your case and the efficiency of the parties involved.

    Be mindful of the equity release scheme costs and fees linked to equity release, and always consult a professional advisor or broker to see if it suits your situation.

    What Repayment Options Are Available for Equity Release on Freehold Flats?

    Equity release on freehold flats offers various repayment options tailored to your preferences and circumstances. You can choose between making interest payments, repaying the loan in full, or opting for a rolled-up interest plan. Understanding these options allows you to select the most suitable repayment strategy.

    Common Questions

    What Is the Process for Equity Release on a Freehold Flat?

    How Does Equity Release Work for Freehold Flats in the UK?

    Are There Any Risks Involved in Equity Release for a Freehold Flat?

    What Are the Best Equity Release Plans for Freehold Flats?

    Can I Live in My Freehold Flat After Equity Release?

    Can I Obtain Equity Release on a Freehold Flat?

    How Much Does Equity Release on a Freehold Flat Cost?

    What is the Problem With a Freehold Flat?

    Is It Possible To Obtain Equity Release On A Freehold Flat If I Am Retired?

    Summarising Equity Release on Freehold Flats

    Considering equity release on a Freehold Flat may be a prudent choice if specific needs or situations arise that make it the most suitable option.

    However, it’s essential to recognise that while some of these schemes may offer more affordable alternatives to traditional mortgage repayments, not all guarantee cost-saving benefits.

    Therefore, consulting a qualified financial adviser is crucial to fully understand your position and determine if equity release on a freehold flat aligns with your financial goals.

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