Getting equity release on leasehold flats

Equity release on leasehold flats

Over the years, we have encountered several enquiries about the equityThe difference between the value of the property and the amo... release for leasehold flats in the UK. The following article will explain how to get equity release on a leasehold flat and what are the pros and cons of this type of mortgage. We will answer the most asked questions such as can I get a equity release on a leasehold property, how can we extend our lease, how many years do I need on my lease to get equity release etc. Mortgage lenders may approve your equity release application but you will need to pass the eligibility criteria. Every lender’s criteria are different when it comes to equity-release products. It is also worth noting that lender criteria and policies change on regular basis so better to speak to an equity release adviser before starting.

According to the Equity Release Council, nearly 12,500 equity release agreements were signed just in the second quarter of 2022 – the equivalent of more than 200 plans concluded every working day.

So, equity release is a popular way for a homeowner to unlock the capital otherwise locked up in their property – but what if that home is a leasehold flat?

Can I get equity release on a leasehold property?

The fact you own the lease on your flat does not rule out the possibility of equity release. What is likely to make a potentially significant difference, though, is the remaining lease length or how many years are left until it comes to its full term.

That interest in the length of the remaining lease is simply because any lender needs the comfort of knowing that it will be possible to sell your property once the equity release agreement reaches its end – that is when you die or move into long-term care and your home then needs to be sold.

To attract potential buyers, the maximum period possible needs to remain on the lease. For equity release on leasehold flats, lenders therefore typically look for an unexpired leasehold term of 75 to 80 years (the exact period depending on the equity release lender in question). In addition, the lender will want some assurance that your home has been maintained in a good state of repair and that it can be expected to sell reasonably easily.

How can I extend my lease?

If a potential lender advises you that your lease is currently too short, you may have alternative options:

• you may be able to extend the lease – although this will necessarily come at a further cost to you;
• you may be able to purchase the freehold from the landlord – either outright or as a share of the freehold with other leaseholders in your block of flats.

Either of these options carries costs that you will want to weigh carefully before proceeding with any equity release agreement. For that reason, you might want to consult an independent expert in equity release arrangements – such as us here at NeedingAdvice.co.uk and draw on our extensive experience in this field.

How long do I need to be on my lease before I qualify for an equity release mortgage?

As we have suggested, any provider of equity release on leasehold flats will be looking for as long an unexpired lease as possible. The remaining years required by any lender might be a minimum of 75 years, but some will insist on a remaining 90 or even 125 years.

The Leasehold Advisory Service points out that, as a leaseholder, you have a legal right to extend the term of your lease – up to as many as 90 additional years. That extension can be negotiated either:

Informally

• directly with your landlord, the freeholder – it involves simply asking for an extension and discovering the landlord’s terms and the price for extending the lease;
• since the landlord’s agreement is by no means certain, or because you cannot reach an agreement on the terms or the price, an alternative route exists;

Formally

• the law sets out the prescribed procedure and timetable that you and your landlord must follow;
• in this case, if you cannot agree on the conditions or price of a requested lease extension, the matter is formally referred to and considered by a Tribunal (Property Chamber).

Where any lease extension is agreed upon, remember that you will face additional costs – such as legal costs and those for the valuation of your home.

Can I use equity releases to pay for an extension on my lease?

Depending on the equity release provider you have chosen, you may be able to use at least some of the proceeds from your agreement to cover the costs of extending your lease.

You will need to ask the provider about the terms and conditions attached to such an arrangement – and, once again, consider consulting an independent financial adviser before making your final decision.

Is equity release available for all leasehold flats?

Different providers of equity release on leasehold flats have different policies concerning the minimum number of remaining years on your lease, but they also have different criteria regarding the types of the apartment on which you might secure an equity release agreement:

• Purpose-built block of flats

  – this is the standard typically involved in equity release on leasehold flats. However, if your block is more than four storeys high, you can expect some lenders to insist that a lift is installed. You will also need to satisfy the lender that your lease agreement complies with its policies;

• Retirement flats

  – these may pose the bigger challenge when it comes to equity release because of the many restrictions or charges potentially complicating the unimpeded ownership of individual retirement flats. Even so, some equity release providers will still consider loans on homes that are restricted to specific age groups;

• Ex-council flats

– lenders may be fewer and further between, and checks are likely to be made about the number of homes in your block that are now privately owned and whether some are still in the ownership of the council.

What information will I need to provide regarding my leasehold flat?

Different equity release providers on leasehold flats will naturally exercise different criteria in assessing your application. Nevertheless, the following are almost certain to feature among the questions asked by any potential lender:

• the number of years remaining on your lease;
• the ground rent that is charged;
• the service charges you pay;
• any fees you are obliged to pay for selling-on your lease;
• the buildings insurance premium you pay; and
• the age of the youngest borrower or party to the equity release agreement.

Next steps

The good news is that equity release is available if you own the leasehold on your flat – subject to your meeting the eligibility conditions of the lender or provider.

However, as with any equity release agreement, careful consideration of all the implications is required. To help you in those deliberations here at NeedingAdvice.co.uk we are more than ready and eager to assist.

FAQs – Equity Release For Leasehold Flats

What is a leasehold property?

Leasehold properties can be both flats and houses. They are usually bought from their owners (or landlords) who retain the right to live there until the end of the term of the lease. The owner then has the option to buy back the property at the end of the lease period. If he does not do so, the property reverts to him.

Can I get Equity Release on leasehold flats?

With us, you can get equity release on most kinds of leasehold houses, flats or maisonettes. Feel free to contact our team today to find out more.

How much equity can I release on a leasehold flat?

This depends on the type of leasehold property you own. For example, if you own a purpose-built block of flats, you should be able to release up to 80% of the value of the property. This figure could go higher if you own a house in a conservation area.

What is the difference between freehold and leasehold?

Freehold means you own your property and the land it sits on for an unlimited amount of time. You have no obligation to sell it to anyone else. A leasehold property is one where you own the building but the land belongs to someone else. You only have a limited time to stay in the property before you must either buy it back or leave.

Read about Multi-unit leasehold property on our blog.

Can I get equity release on a retirement flat?

Yes, it’s possible to get equity release on a retirement house. You can read more about this on our website.

How can I contact an equity release lender?

You need to contact a specialist equity release adviser who can help you to find a suitable equity release lender.

What are lifetime mortgages?

A lifetime mortgage is the most common and widely used equity release product. It allows you to borrow against the equity in your home without having to make monthly repayments. However, you may still have to pay some interest over the life of the loan.

Can I get a capital release on a jointly owned property?

Yes, you can get a capital release on jointly owned property. If you are interested, you read more about the jointly owned capital releases on our blog.