Properties Not Suitable For Equity Release

Types of Properties Not Suitable for Equity Release

Equity release is a financial product that enables homeowners aged 55 and over to access the equity tied up in their homes. This type of product is becoming increasingly popular, as people are living longer and need additional funds to support their retirement. However, not all properties are suitable for equity release. In this article, we’ll discuss the types of properties that may not be suitable for equity release.

Leasehold Properties

Leasehold properties may not be accepted for equity release by some providers due to the potential risks and complications associated with this type of property ownership. Here are some reasons why leasehold properties may not be accepted for equity release:

• Short lease term: Some leasehold properties may have a short lease term, which could cause problems for the equity release provider. The shorter the lease, the less valuable the property, and the less equity can be released. In addition, the leasehold property may become more difficult to sell, making it a riskier investment for the provider.
• Ground rent and service charges: Leasehold properties typically require the homeowner to pay ground rent and service charges, which can be expensive and increase over time. These costs can impact the amount of equity that can be released and may make the property less attractive to equity release providers.
• Restrictions on alterations: Leasehold properties may be subject to restrictions on alterations or improvements, which can limit the homeowner’s ability to enhance the value of the property. This can reduce the amount of equity that can be released and may make the property less attractive to equity release providers.
• Restrictions on subletting: Some leasehold properties may be subject to restrictions on subletting, which can limit the homeowner’s ability to generate rental income from the property. This can reduce the amount of equity that can be released and may make the property less attractive to equity release providers.

According to recent data from the Equity Release Council, 33% of equity release plans are taken out on leasehold properties. However, the percentage of leasehold properties that are eligible for equity release may vary depending on the specific product and the individual circumstances. Homeowners with leasehold properties need to consult with a financial adviser or equity release specialist to determine their eligibility and explore their options.

Properties with Structural Issues

Properties with structural issues may not be accepted for equity release due to the potential risks and complications associated with these types of properties. Here are some reasons why properties with structural issues may not be accepted for equity release:

• Risk to the equity release provider: Properties with structural issues may be more difficult to value and may pose a higher risk to the equity release provider. The value of the property may be impacted by the cost of repairs and renovations needed to correct the structural issues, and these costs may be difficult to estimate. In addition, structural issues can affect the property’s safety and stability, making it a riskier investment for the provider.
• Difficulty selling the property: Properties with structural issues may be more difficult to sell, which can make them a less attractive investment for equity release providers. If the property cannot be sold for its full value, the equity release provider may not be able to recoup the full amount of the loan.
• Impact on the homeowner: Structural issues can also significantly impact the homeowner’s quality of life and financial stability. The cost of repairs and renovations can be expensive and may impact the amount of equity that can be released. In addition, the homeowner may be required to move out of the property during the repairs, which can be disruptive and costly.

According to recent data from the Equity Release Council, 1% of equity release plans are taken out on properties that require underpinning, a type of structural repair. While this is a relatively small percentage, it indicates that some homeowners may be considering equity release as a way to finance structural repairs.

Properties that are in a state of disrepair may be difficult to get equity release on. This is because lenders may be hesitant to offer a loan on a property that is not easily resalable. Additionally, the cost of repairs may be high, leading to a higher risk of the lender not recouping their money.

Holiday Homes

Holiday homes are not suitable for equity release. This is because the property needs to be the homeowner’s primary residence. Equity release providers will require that you live in the property for a certain number of days per year. If the property is a holiday home and not your primary residence, you may not be eligible for equity release. So unfortunately that country cottage you have to escape the grind of London might not be eligible for equity release.

Listed Properties

Listed properties may not be accepted for equity release by some providers due to the potential risks and complications associated with this type of property ownership. Here are some reasons why listed properties may not be accepted for equity release:

• Restrictions on alterations: Listed properties are often subject to strict regulations and restrictions on alterations and renovations. This can make it more difficult to make necessary repairs and upgrades to the property, which can impact the value of the home and make it a less attractive investment for equity release providers.
• Limited market appeal: Listed properties may have limited market appeal due to their unique characteristics and features. This can make it more difficult to find a buyer for the property if it needs to be sold to repay the equity release loan.
• Difficulty in valuing the property: Listed properties can be more difficult to value due to their unique characteristics and historical significance. This can make it more challenging for equity release providers to accurately assess the value of the property and determine the amount of equity that can be released.

According to a report by Key Retirement, only 1.5% of equity release plans were taken out on listed properties in the UK in 2020. This indicates that there may be limited options for homeowners with listed properties who are seeking to release equity from their homes.

Properties with Shared Ownership

Shared ownership properties are generally not accepted for equity release, as the homeowner does not own the property outright and may not have full control over the decision-making process. This can make it more difficult for equity release providers to offer this type of product and may limit the options available to homeowners who are seeking to release equity from their homes.

• Shared ownership arrangements: Properties with shared ownership typically involve joint ownership between the homeowner and a housing association or other third party. This can make it more difficult to release equity from the property, as the homeowner may only own a portion of the property and may not have full control over the decision-making process.
• Limited market appeal: Properties with shared ownership may have limited market appeal, as they are typically aimed at first-time buyers and may not appeal to older homeowners who are seeking to release equity from their homes.
• Difficulty in valuing the property: Shared ownership properties can be more difficult to value due to the complex ownership arrangements and restrictions on the sale of the property. This can make it more challenging for equity release providers to accurately assess the value of the property and determine the amount of equity that can be released.

Overall, the risks associated with shared ownership properties may make it more difficult for equity release providers to offer this type of product.

Non-standard Construction Properties

Non-standard construction properties are not suitable for equity release. This includes properties made of non-traditional materials such as concrete, steel, or timber. The equity release provider may require that you have a full structural survey carried out before they will release any funds.

A non-standard construction property is a type of property that is built using materials or construction methods that are not commonly used in the construction of residential properties. Examples of non-standard construction materials may include timber or metal frames, concrete or brick panels, and prefabricated or modular units. Non-standard construction methods may include techniques such as steel frame, poured concrete, or straw bale construction.

Non-standard construction properties may be more vulnerable to certain types of damage or deterioration over time, and they may be more difficult to repair or replace. As a result, non-standard construction properties may be considered higher risk by some lenders and insurers, and they may be more difficult to finance or insure than standard construction properties.

If you are considering purchasing a non-standard construction property or if you currently own a non-standard construction property, it’s important to do your research and understand the potential risks and challenges associated with this type of property. You may also want to consult with a professional surveyor or another expert to evaluate the property and assess its condition and value.

Non-standard construction properties may not be accepted for equity release by some providers due to the potential risks and complications associated with this type of property. Here are some reasons why non-standard construction properties may not be accepted for equity release:

• Potential risks and safety concerns: Non-standard construction properties may be more susceptible to structural issues and safety concerns, which can impact the value of the home and make it a less attractive investment for equity release providers.
• Difficulty in valuing the property: Non-standard construction properties can be more difficult to value due to their unique characteristics and potential risks. This can make it more challenging for equity release providers to accurately assess the value of the property and determine the amount of equity that can be released.
• Limited market appeal: Non-standard construction properties may have limited market appeal, as they may be more difficult to sell if they need to be sold to repay the equity release loan.

According to a report by Key Retirement, non-standard construction properties accounted for less than 1% of equity release plans taken out in the UK in 2020. This indicates that there may be limited options for homeowners with non-standard construction properties who are seeking to release equity from their homes.

Mobile Homes

Aside from usually not being your main residence, mobile homes are generally not accepted for equity release, as they are not considered to be permanent structures and do not have the same level of value as traditional brick-and-mortar homes. Additionally, mobile homes are often located in mobile home parks or on leased land, which can further impact their value and suitability for equity release.

Here are some reasons why mobile homes are generally not accepted for equity release:

• Ownership and land rights: Many mobile homes are located on leased land, which means that the homeowner does not own the land beneath the home. This can make it difficult to secure a loan or release equity on the property, as the homeowner does not have full control over the land.
• Depreciation: Mobile homes typically depreciate in value over time, rather than appreciate like traditional homes. This means that they may not be worth as much over time, making them less suitable for equity release.
• Location: Mobile homes are often located in mobile home parks, which can be subject to usage restrictions, rent increases, and other challenges that can impact their value and suitability for equity release.
• Market demand: Mobile homes may be less in demand than traditional homes, which can further impact their value and suitability for equity release.

Even that lovely static caravan you have in Cayton Bay in Yorkshire most likely isn’t eligible for equity release.

Usage Restrictions

Properties with usage restrictions, such as those located on a flood plain or with an agricultural tie, are generally not suitable for equity release due to the potential impact on the property’s value and the level of risk involved.

There are several types of usage restrictions on a property that can negatively affect equity release:

• Planning restrictions: Properties with planning restrictions, such as those that are listed or located in a conservation area, may be subject to limitations on development or renovation. These restrictions can limit the potential for the property’s value to increase and may make it more difficult to release equity.
• Agricultural ties: Properties with agricultural ties may have restrictions on their use and development. This can limit the property’s value and make it more difficult to release equity.
• Flood plain restrictions: Properties located in flood-prone areas may have restrictions on their use and development. This can limit the potential for the property’s value to increase and make it more difficult to release equity.
• Leasehold restrictions: Properties with restrictive leasehold agreements, such as those that limit subletting or prohibit alterations, may be more difficult to release equity on due to the potential limitations on the property’s use and development.
• Conservation restrictions: Properties located in areas designated as sites of special scientific interest, areas of outstanding natural beauty, or national parks may have restrictions on their use and development. This can limit the potential for the property’s value to increase and make it more difficult to release equity.

Environmental Hazards

Properties located near environmental hazards are often considered unsuitable for equity release. This is because these hazards can pose health risks, damage property values, and make it more difficult to sell the property. Here are some examples of environmental hazards that can impact the suitability of a property for equity release:

• Landfills: Properties located near landfills can be affected by odours, noise, and dust, as well as potential health risks from exposure to hazardous waste. This can make it more difficult to sell the property and can also impact its value, making it less suitable for equity release.
• Power lines: Properties located near high-voltage power lines may be subject to electromagnetic fields that can pose potential health risks. This can make it more difficult to sell the property and can also impact its value, making it less suitable for equity release.
• Industrial facilities: Properties located near industrial facilities, such as factories or refineries, may be subject to noise, pollution, and other health risks. This can make it more difficult to sell the property and can also impact its value, making it less suitable for equity release.
• Nuclear power plants: Properties located near nuclear power plants can be subject to potential health risks in the event of an accident or other safety incident. This can make it more difficult to sell the property and can also impact its value, making it less suitable for equity release.
• Contaminated land: Properties on or near contaminated land, such as former industrial sites or waste dumps, can pose health risks and require expensive clean-up efforts. This can make it more difficult to sell the property and can also impact its value, making it less suitable for equity release.

Solar Panels and Equity Release

Leased solar panels can potentially impact equity release in a few ways. Here are some factors to consider:

• Impact on property value: If a property has leased solar panels, this can potentially impact the value of the property. Leased solar panels may be viewed as a liability by some potential buyers, who may not want to take on the lease agreement or be unwilling to pay for the remaining lease term. This can potentially reduce the amount of equity that is available to release from the property.
• Lender requirements: Some equity release lenders may not accept properties with leased solar panels, as they may view them as a potential liability. If the lender does accept properties with leased solar panels, they may require that the lease agreement be transferred to the new owner, which can potentially impact the amount of equity that is available to release.
• Ongoing lease costs: Leased solar panels may require ongoing lease payments, which can potentially impact the amount of equity that is available to release. The cost of the lease payments may reduce the value of the property and the amount of equity that is available to release.
• Ownership of the solar panels: The ownership of the solar panels may impact equity release. If the homeowner does not own the solar panels outright, this can potentially impact their ability to release equity from the property.

Conclusion

In summary, not all properties are suitable for equity release. It is important to check the eligibility criteria before applying for equity release. The eligibility criteria will vary depending on the equity release provider. It is important to seek independent legal and financial advice before making any decisions.

If you would like to find out how much money you might be able to get you can use our free equity release calculator. No personal details are required to use it so you don’t have to worry about anybody calling you.

It’s important to note that this is not an exhaustive list and that the eligibility of equity release will depend on individual lenders and circumstances.