Equity release on a retirement flat

Getting equity release on a retirement flat

EquityThe difference between the value of the property and the amo... release on a retirement flat has become increasingly popular with older people. Over the year we have received many enquiries related to equity release on the retirement flats. In this article, we will try to answer the most asked questions such as can I get an equity release on my retirement flat, what are the major conditions of getting equity released on retirement homes etc.

If you are over 55 and own the home you live in – whether that’s the freehold, leasehold, or commonhold – equity release typically offers a way of freeing up some of the cash value otherwise locked into your ownership of the property. That includes the retirement flat or sheltered housing unit you own.

Once unlocked, the cash you receive from equity release can be spent any way you choose – on some of the finer things in life to enjoy in your retirement, as a gift to pass on to your loved ones, or to fund any modifications to your home that become necessary as you grow older.

What is equity release?

Retirement home equity release is effectively little different from any other equity release arrangement. It offers a way of unlocking at least some of the value otherwise stored up in your home, as a cash lump sum or an income, while you continue to live there.

Whether it’s equity release on a retirement flat or sheltered accommodationAccommodation for elderly or disabled people that includes a..., these are variants of a whole catalogue of different types of arrangements offered by a wide range of providers. The choice can be overwhelming – and no less important – so it’s critical to seek professional financial advice before committing to any retirement home equity release.

Only then can you really weigh up critical features such as the terms and conditions of each plan, the loan criteria, interest rates, and the match with your individual needs and circumstances?

If you’re interested in learning more about equity releases, check out our article on the pros and cons of equity releases.

What is the difference between lifetime mortgages and home reversion equity release?

Equity release schemes fall into two broad categories:

• lifetime mortgages – mortgage loans advanced against your home as security and allowing you to retain ownership of the property; and
• home reversion – where you sell part or all of your home to the scheme’s provider, who grants you the right to continue to live on the property.

For the purposes of our current discussion, let’s focus on lifetime mortgages for retirement home equity release.

What is the difference between sheltered housing and retirement housing?

In the context of retirement home equity release, there is no difference between retirement housingHousing specifically designed for retired or elderly people.... and sheltered housing.

Sheltered housing is the term typically applied to a collection of self-contained flats, apartments, or bungalows, often with an onsite warden or manager who can quickly respond and attend to any emergencies.

The accommodation is also sometimes called retirement housing and may contain a mix of homes, some owned and others rented.

Can I get sheltered accommodation equity release on a retirement flat?

Although providers of such agreements may be few and far between, it is possible to get equity release on a retirement apartment or flat.

Let’s look closely at why it might prove more challenging.

Why is it challenging to get equity release on a retirement apartment?

Equity release relies on your ownership of the home where you live – the property provides the security against which the loan is advanced.

Any equity release lender, therefore, will need to know more about the nature of your ownership of your retirement apartment – which can take one of three basic forms :

Freehold

• if you own the freehold to your home, you own not just the property but the land on which it is built for an unlimited period;

Leasehold

• you own your property, but only for as long as the unexpired period of the lease (after which ownership reverts to the freeholder). You do not own the land on which it is built;
• along with other leaseholders in the development, you might have agreed to the purchase of a share of the freehold – giving you somewhat more control over the property and its associated management costs; or

Commonhold

• the third type of ownership is where the individual owners of the retirement dwellings own the freehold of the property they occupy for an unlimited period;
• a commonhold association (formed by the property owners), however, separately owns and manages the shared and common areas of the development.

The range of possibilities means that equity release lenders will look closely at your particular type of ownership. For example, for some types – leasehold or commonhold ownership, for instance – potential lenders may consider your retirement home more challenging to sell at the end of the equity release agreement. This is because retirement homes often have conditions that involve “sell on” fees when the property is sold. Or beneficiaries of your will inherit ownership. This may affect the lender’s valuation of the property, the maximum you might borrow, and the lower loan-to-value ratio that is offered.

If you already have an equity release agreement on the house you currently occupy but are planning to buy and move into a retirement home or sheltered housing, your current lender may allow you to transfer the agreement as you move. This depends on the type of retirement home you choose and the possibility of further conditions attached to any agreement.

What conditions do equity release retirement flat lenders require?

The criteria imposed will vary over time and from one provider to another. At the time of writing (September 2022), typical conditions may be along the following lines:

• a property value of at least £200,000;
• existing properties only – at least three years old and not newly built;
• maximum loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV) ratio of 66%; and
• any “sell on” resale fee must be less than 3% of the market value of the home;

Next steps

While any equity release agreement will require careful consideration before reaching a decision, if you are looking for equity release on a retirement flat or other sheltered accommodation, you may want to exercise still further caution.

To help you arrive at a decision that suits your personal needs and circumstances, you might want to draw on the expertise and experience we offer here at NeedingAdvice.co.uk.

FAQs – Equity Release on Retirement Flat

Can I get Equity Release on Retirement Flat?

Yes, you can! Equity release is available for all types of properties including residential and commercial properties. The main difference between the two is that residential properties are usually owner-occupied while commercial properties are rented out.

Which are the best equity release plans for retirement homes?

There are many different equity release plans available for retirement flats. These include fixed rate and variable rate products. Fixed-rate products tend to provide a higher interest rate for a set term. Variable rate products tend to have a lower initial interest rate with the option to increase it after a certain number of years.

How to choose the best equity release product?

For choosing the best product, you need to contact a qualified equity release adviser. They will ask questions about your financial situation and goals in order to recommend the most suitable plan. You should also take into account how much money you would like to borrow, whether you want to pay off debt or use the cash to fund additional spending, what sort of lifestyle you want to live, and so on.

How does retirement equity release work?

Retirement equity release works by taking advantage of the fact that you own a property outright. As long as you continue paying the mortgage, the equity in your property increases each month. When you retire, you simply stop making payments and the equity is released back to you.

Is there anything else I need to know about the retirement equity release?

You should always seek independent advice before signing up for an equity release scheme. This includes advice from a professional adviser who specialises in this area. It’s important to understand exactly what you’re getting yourself into and make sure you’re happy with the terms and conditions.