Can I get a lifetime mortgage on a leasehold property?

Lifetime Mortgage On Leasehold Property

Getting a lifetime mortgage on a leasehold property is more complicated than compared to regular mortgages. The reason is that the owner of the freehold will be able to sell their interest in the property at any time, and if they do so then you have no right to buyThe right of council tenants to purchase their council. it back. This means that your loan can only be repaid when the original term has expired or been paid off.

EquityThe difference between the value of the property and the amo... release has shown itself to be a realistic way of unlocking at least some of the cash tied up in the property you own. It is so popular that homeowners in the UK released an estimated £4.8 billion in 2021 alone – according to a story in the financial pages ofthe Daily Mail newspaper on the 3^rd of October 2022.

That’s all well and good, but what if the home you own is subject to a lease – can you still get equity release or a lifetime mortgage on a leasehold property?

What is the difference between a leasehold and a freehold property?

English property law makes a distinction between freehold and leasehold property – and the differences are described in further detail on the government-sponsored website Money Helper:

Freehold

• if you own the freehold, you own outright a property and the land on which it is built;
• you are then also entirely responsible for all the costs of maintaining the house and its land;

Leasehold

• if you own the leasehold, you own the property subject to the terms of a lease granted by the freeholder;
• you own the property only for the duration of the lease, and ownership reverts to the freehold at the end of the lease (unless arrangements are made to extend it);
• although some are houses (built on land owned by the freeholder), most leasehold properties are maisonettes or flats.

This distinction between the principal types of ownership is clearly important – with respect not only to your enjoyment of the property but also to the prospects for its sale if and when you decide to move.

What is a lifetime mortgage?

A lifetime mortgage is like any other mortgage in so far as it is a loan secured against the property you own, with both capital and interest repayments required.

As the title suggests, a lifetime mortgage endures for just as long as that – for the rest of your life, until you pass away or until you move into long-term residential care. A lifetime mortgage is known as an equity release plan because it frees up the capital otherwise locked into your home. It provides you with a cash lump sum or series of instalments which you can spend as you choose – all the while continuing to live in the home you own.

A further distinctive feature of a lifetime mortgage is that the capital repayment does not fall due until the loan reaches its full term (when you die or move into long-term care). Although interest payments accrue monthly or annually, these can be delayed and rolled over until the accumulated interest is repaid at the end of the mortgage term.

The principles are straightforward, but the implications of choosing a lifetime mortgage on leasehold property are likely to be significant. Since the capital loaned through the equity release will need to be repaid at the end of the mortgage term – along with potentially substantial sums of accumulated interest – any inheritance you had planned to leave to your loved ones will be significantly reduced.

It is critical that you seek professional advice – from experts such as us here at NeedingAdvice.co.uk – before entering any equity release agreement.

Can I get an equity release on a leasehold property?

Equity release on leasehold flats is a possibility, and you may have several options from which to choose.

The success of your application will depend on the lender’s policies concerning leasehold property – where ownership is defined by the remaining years of the lease, which, in turn, will impact the property’s marketability when it is sold after the lifetime mortgage.

Any lender will be looking for a long lease – the longer the better, with an unexpired term of at least 75 to 80 years.

A professional valuation and survey will also need to confirm the property’s structural integrity.

To improve your chances of securing a lifetime mortgage on leasehold property, you might want to consider negotiating an extension of the lease with the freeholder or purchase of a share of the freehold with other leaseholders of flats in your block. The possibilities are discussed further on the official government website. These options will, of course, incur additional costs.

Can I use lifetime mortgage equity release to pay to extend my lease?

Given the potential costs involved, you might want to meet these from the proceeds of the lifetime mortgage you seek.

Many lenders may agree to that action – although each will have different policies, terms, and conditions on the property involved, the extended lease you want to buy, or the details of any shared freehold ownership with other occupants of flats like yours.

Is lifetime mortgage equity release available for all leasehold properties?

Providers of lifetime mortgage equity release on leasehold flats will also have different policies on the types of property that might be eligible – with the decisions largely hanging on the ultimate marketability of the property at the end of the agreement.

Some may pose more significant difficulties and hurdles than others. Former council flats, for example, may qualify. However, the lender will want to know the proportion of those in private ownership and how many are still occupied by council tenants.

Similarly, retirement flats (also known as sheltered accommodationAccommodation for elderly or disabled people that includes a...) may also prove more of a challenge because of the restrictive covenantsLegal agreements that restrict what the borrower can do with... typically attached to such leases – but there are nonetheless lenders prepared to grant equity release on leasehold flats such as this.

Probably the most suitable leasehold properties for straightforward equity release are those flats in purpose-built blocks. Once again, different providers will exercise different criteria – and, if the block is more than four storeys high, for example, there might need to be a lift in it.

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

Different equity release providers will, of course, have their own various requirements for the type of information you will need to provide. Nevertheless, you will probably be expected to furnish information about:

• the remaining number of years the lease has to run – the unexpired portion;
• the ground rent charged under the terms of the lease;
• any service charges;
• the building insuranceInsurance that covers damage to the structure of a property.... that is paid by the freeholder or shared among other leaseholders in accordance with a Right to Manage agreement;
• the value of any “sell-on” fees that will be charged when the property is sold; and
• the age of the youngest signatory to the lifetime mortgage agreement.

Next steps

You’ll have realised that there is a lot to think about if you want to explore the possibility of equity release on leasehold flats and arrange a lifetime mortgage on one you own.

So that you have all the relevant facts available when weighing up the many pros and cons, you might want to first consult us here at NeedingAdvice.co.uk for impartial, professional advice.

FAQs

How many years do I need to have on my lease to get an equity release?

Every equity release lender will have different minimum terms of leases that will accept. It can range from a minimum of 75 years and some lenders can accept the lease for at least 90 to 125 years. The longer your lease term, the greater the amount of equity you will have access to.

If you are looking to borrow against the equity in your leasehold property, then you should check out our equity release categories.

Is it possible to get a lifetime mortgage on a leasehold property?

Yes! Equity release loans on leasehold properties are becoming increasingly popular. There are several lenders who offer these products, so you just need to find the right one for you.

Are there any downsides to getting a lifetime mortgage on the leased property?

There are no downsides to getting a lifetime mortgage on a leasehold house. In fact, they are quite easy to obtain. You simply need to make sure that you choose the correct product for your needs.

By consolidating your debts into a mortgage, you may be required to pay more over the entire term than you would with your existing debt.

Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.