Can I Rent out My House with Equity Release?

Will a Tenant or Lodger Cause Trouble with Equity Release?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Looking for Extra Cash or to Rent Out Your Property With Equity Release? Discover the Limitations on Renting Your Property and Having a Tenant or Lodger with Equity Release…

Have you recently wondered: can I rent out my house with Equity Release?

With more than 70% of UK-based retirees owning homes, there’s multiple ways to earn income from the property.

Is this possible?

As experts in our field, we discuss the following in this article:

    Our expert team at EveryInvestor has reviewed over 75 equity release companies and 250 schemes to discover the most up-to-date property laws.

    Here’s what we’ve found about equity release and renting.

    What’s Equity Release?

    Equity release is a financial product designed for homeowners over the age of 55 years to access funds from their property while continuing to live there.

    The greatest benefit of these products is that repayments are voluntary, with no possibility of foreclosure. Instead, you’ll pay the loan and any compound interest when the homeowner dies or enters long-term care. 

    Equity release proceeds are tax-free, and you can utilise them for any purpose.

    Finally, equity release borrowers have the option of receiving their funds in a lump sum amount, a drawdown programme, or as a monthly income.

    There’s 2 types of equity release: a lifetime mortgage and a home reversion scheme.

    Can You Do Equity Release on a Rental Property?

    Yes, you can only do equity release on a rental property if you intend to live there as your primary residence. 

    The same applies to any UK vacation houses you may own.

    This is because equity release programmes are only available on your primary residence. 

    Take note.

    If you stop living in the home from which you took equity release, the lender will force you to sell it and repay the amount. 

    Can You Let a Property With Equity Release?

    It depends. You can’t start letting out a property you have taken out an equity release plan on for the same reason you can’t take out an equity release plan on a rental property.

    You’d have to move out first to rent out the property, which would trigger the loan repayment requirement and early repayment penalties. 

    Can I Have a Tenant With Equity Release?

    No, you can’t have a tenant with equity release, since most equity release companies will not allow a 3rd-party tenant to live in the home.

    It’s critical to grasp the accepted concept of a ‘tenant.’

    A tenant is someone who has exclusive access to areas of a property that the homeowner may not visit.

    A tenant, for example, is someone who lives in an annex on the property with a locked door. 

    The equity release source is unlikely to allow this. This is because a tenant has legal access to the property.

    Can I Have a Lodger With Equity Release?

    Yes, you can have a lodger with equity release.

    Most equity release providers allow homeowners to keep lodgers in their homes after taking up an equity release plan.

    They may, however, impose a limit on the number of lodgers permitted.

    To be clear.

    A lodger is someone who shares the property’s rooms and resources, but has limited, temporary access, and no legal rights over the property.

    Your equity release lender may require a signature or some paperwork from your lodgers, and they’ll need to move when you pass away or move to longterm care.

    Listing for Airbnb & Equity Release 

    You can list for Airbnb with equity release since it’s essentially a lodger agreement.

    Lodgers vs. Tenants & Equity Release

    Rules vary when it comes to lodgers vs. tenants and equity release.

    One of the most important requirements for an equity release loan is that you must live in your house for at least 6 months every year and consider it your primary residence. 

    Is that to say you can accept lodgers or tenants?

    Normally you can seek equity release on a property if you have a lodger, but not if you have a tenant. 

    The legal presumption that a renter gains rights is the primary basis for this.

    Following equity release, you can rent out your home, but you must also live there.

    This is because getting equity release with a sitting tenant differs from obtaining equity release with a lodger.

    Significant Distinctions Between Lodgers & Tenants

    Because of a Tenancy Agreement, a tenant has more rights than a lodger.

    The landlord must get permission to enter the rented premises. 

    Once a contract is in place, the landlord has 6 months to remove the tenant if they followed acceptable practices. 

    Tenancy Deposit Scheme (TDS)

    The Tenancy Deposit Scheme (TDS) requires a landlord to return the tenant’s deposit.

    You can evict a lodger from the property ‌with ‘sufficient’ notice.

    This period is normally 28 days, but it might be shorter.

    They sign a licence instead of a lease agreement, which is a significant distinction between a tenant and a lodger. 

    Lodgers share living quarters with the landlord in the landlord’s primary residence, and the landlord must remain in the lodging during the lodger’s stay. 

    Importantly.

    Because the lodger mustn’t have exclusive occupancy, there can’t be a lock on their door within the property; otherwise, a tenancy may arise.

    Other signs that there is no tenancy include landlord services such as supplying clean linen and cleaning, as well as constant entry into the room.

    What does this mean for you?

    It’s vital to distinguish between the 2 since different equity release businesses have varied requirements for 3rd-party property occupation.

    Airbnb & the Rent-a-Room Scheme with Equity Release

    The good news is that both Airbnb and the Rent-a-Room Scheme are lodger agreements, so you can use one (or both) of these services to rent out one or more rooms in your home. 

    Because the United Kingdom is a popular tourist location, this is a great way to supplement your retirement income and keep you engaged as you’ll get to meet and entertain people from all over the world.

    Common Questions

    Could Listing for Airbnb Get You In Trouble With Your Equity Release Provider?

    Can I Rent Out My Home with Equity Release While I'm on Holiday?

    In Conclusion

    Equity release is an excellent way to gain access to property wealth. It can, however, limit your rental choices.

    As a result, it’s critical to assess the advantages and disadvantages.

    Once you’ve unlocked equity, you can’t rent out your house, nor can you get equity release on a rental property. 

    But the good news is that having a lodger or, sometimes, a tenant may not be a barrier to getting equity release.

    Speaking with an equity release specialist can help determine if under your specific circumstances, you can rent out your house with equity release.

    Editorial Note: This content has been independently collected by the EveryInvestor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.