If you want to release equity from your home but have a poor credit rating, you might be wondering about your options. The encouraging news is that many equity release providers are willing to consider applications, even from those with a less-than-perfect credit history.
Equity release enables you to access the value locked in your property without needing to sell your home or take out a conventional loan. Depending on your preferences, you can opt for a lump sum or regular payments, which are repaid when your property is sold, either after your passing or if you move into long-term care.
Choosing to release equity is a significant financial decision, so it’s crucial to fully understand all potential implications before proceeding. However, if you feel confident that equity release is the right choice for your circumstances, there are steps you can take to improve your chances of approval.
Consulting an independent mortgage adviser is one of the best ways to explore your options. They can evaluate your unique financial situation and recommend the most suitable equity release product for your needs.
At Teito, our team of specialists works with over 90 lenders across the market. This extensive network enables us to identify the right equity release deal tailored to your individual requirements. We recognise that every financial situation is unique, which is why we provide a personalised service for all our clients.
Can I Release Equity If I Have Bad Credit?
Equity release differs from a standard mortgage in that it does not involve monthly repayments. Instead, interest accrues and is added to the loan balance, which only needs to be repaid upon your death or if you move into long-term care. Because there is no immediate risk of default, lenders are often more willing to approve equity release for individuals with poor credit compared to standard mortgages.
If you are struggling with debt, equity release could provide the financial relief you need to regain control of your finances.
It’s important to understand the distinction between secured and unsecured lending. Equity release is a form of secured borrowing, unlike unsecured debts such as credit cards, personal loans, or overdrafts. Most equity release providers require that your property is free from other secured borrowing. If you have an outstanding mortgage, most lenders will ask that it be fully repaid before releasing any equity. However, some exceptions exist, so it’s advisable to consult an adviser to assess your eligibility.
Before proceeding with equity release, it is crucial to explore all available options and seek independent advice. Equity release reduces the value of your estate and could impact your eligibility for means-tested benefits. Therefore, obtaining professional guidance is essential to fully understand the implications and make an informed decision.
Can I Get Equity Release If I Have a County Court Judgement (CCJ)?
A County Court Judgement (CCJ) is a legal order requiring you to repay a debt, and it can significantly impact your credit rating.
Most lenders are reluctant to offer equity release to individuals with a CCJ, as there is a risk that the court could enforce the sale of the property if payment terms are not met. However, some specialist lenders may be open to considering your application depending on your circumstances.
If you are seeking equity release but have a CCJ on your record, consulting an independent mortgage adviser is highly recommended. They can evaluate your specific circumstances and help identify the most suitable equity release product for your needs.
Can I Get Equity Release If I Have an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement (IVA) is a debt management solution that enables you to repay your debts over an agreed period, typically five years. Most IVAs include a clause requiring you to release equity from your property to fulfil the creditors' demands.
Because of this clause, many lenders are hesitant to approve equity release applications from individuals with an active IVA. It is generally advisable to fully satisfy the terms of your IVA before considering equity release.
If you are struggling to make repayments under your IVA, it is crucial to seek professional advice promptly. A qualified debt adviser can review your circumstances and offer guidance on the most suitable course of action.
Bankruptcy and Equity Release
Bankruptcy is a legal process that allows individuals who are unable to repay their debts to have those debts cancelled or discharged. In the UK, any person can declare themselves bankrupt by petitioning the court.
Lenders are generally unwilling to consider equity release applications from people who are bankrupt and will only consider an application once the bankruptcy has been discharged.
If you are considering equity release while being bankrupt, it is essential to seek professional advice promptly. An experienced debt adviser can evaluate your specific situation and provide tailored guidance on the most appropriate steps to take.
Understanding the Types of Equity Release
There are two primary types of equity release: lifetime mortgages and home reversion plans.
Lifetime Mortgage
A lifetime mortgage is a loan secured against your property, typically repaid when you pass away or move into long-term care. These mortgages generally have higher interest rates compared to standard mortgages, as the lender assumes the risk of deferred repayment.
Home Reversion
A home reversion plan involves selling a portion of your property to a home reversion provider in return for a lump sum or regular income. The provider becomes a co-owner of your property and is entitled to their share of the proceeds when the property is eventually sold.
Choosing the Right Equity Release Product
When considering equity release, it’s important to evaluate the following factors:
Type of Equity Release Product: Decide whether a lifetime mortgage or a home reversion plan is most suitable for your needs.
Amount of Equity to Release: Determine how much money you need to access.
Age: Your age, as well as the age of your spouse or partner, will influence eligibility and product options.
Property Value: The value of your home will impact the amount of equity you can release.
Outstanding Debts: Consider your existing mortgage balance or any other debts secured against your property.
Income and Expenditure: Assess your current financial situation, including income and expenses.
Future Plans: Think about your long-term goals and how equity release fits into your overall financial strategy.
An independent equity release adviser can evaluate your unique circumstances and offer tailored guidance to help you select the most suitable product for your needs.
How Much Equity Could I Release?
The amount of equity you can release depends on several factors, including your age, the value of your property, and any outstanding mortgage balance.
In general, the older you are and the higher your property’s value, the greater the amount of equity you are likely to be able to access.