Does equity release affect your credit score?

What is equity release? 

Your equity in your home is the total market value of your property minus any outstanding mortgage.  

Equity release is a way to access some of the money tied up in your home while continuing to live on the property. This is typically achieved through a specific type of mortgage or selling part of your home.  

It can be helpful if you need money for costs, especially later in life when care can become a factor. 

You don’t need to pay off your mortgage fully to use equity release, but you must be at least 55 years of age.  

With equity release, you can either get a lump sum or regular income instalments in exchange for part of the value of your home.  

Does equity release require a credit check? 

If you apply for equity release, you may have to undergo several credit checks, so it’s worth checking your credit report before applying. 

The equity release provider will perform a credit check when you apply and may do so again before releasing funds to check that your financial situation hasn’t changed, as the process can take a few months.  

While your property is collateral for the loan, and you don’t necessarily have to make monthly payments, the lender needs peace of mind that you’re a responsible borrower. 

The credit check will also ensure the lender has full visibility of any other debts attached to the property, such as an outstanding mortgage. 

As the money is repaid when your home is either sold or when you or the last borrower dies or goes into long-term care, equity release is a long-term arrangement where the amount owed can increase substantially if you’re not making any payments.  

If there are any debts against your property, the lender needs to know. While some will need to be addressed, other debts, such as credit card debt or an unsecured loan, may not need to be repaid first.  

Your application will be considered higher risk if you have an outstanding county court judgement (CCJ) or an individual voluntary arrangement (IVA), as they could ask for a charging order or try to force you to sell your home to pay off debts.  

A CCJ is a court order that is issued if you fail to repay any money you owe. It is an order to repay money owed to a creditor. An IVA is an agreement with your creditors to pay all or part of your debts, which involves making regular payments. 

Will equity release affect your credit score? 

No, applying for equity release should not affect your credit score. 

You’ll need to undergo a credit check by the lender so they have a full picture of your financial situation, and they may require you to clear any CCJs or IVAs before you receive any money.  

Your credit score will likely improve after settling a CCJ or IVA.  

An equity release provider will want to be the first sole charge on your property, so they have a legal claim against it and have the highest priority so they can sell your home when the time comes.  

They will check the title deeds of the property to discover if any other parties have an interest in your home or check the Land Registry to confirm you own your home. 

It’s worth seeking expert advice from a qualified financial adviser or mortgage broker before applying for equity release to ensure it is right for you and to advise you on any potential issues. 

Can I get equity release with a poor credit score or history? 

Yes, you’ll still likely be able to get equity release even if you have a poor credit score or no credit history, although conditions may apply if you have a CCJ or IVA. 

Major factors that will affect any lending decisions are the condition of your home, your age, and the resale value of your home. As part of the application process, an independent surveyor will ensure your home meets the lender’s criteria. 

It’s worth noting that the amount of equity you can access is unlikely to be impacted by your credit score, but it may affect any terms and make it more expensive. It’s advisable to be upfront about anything on your credit report that could affect your application. 

What should I do if my equity release application is unsuccessful? 

It’s a good idea to seek expert financial advice before applying for equity release to help improve your chances of a successful application.  

Your equity release application could be rejected due to not meeting the criteria, such as your age or the condition of your property. 

It’s worth talking to a financial adviser or mortgage broker about why your application was rejected and finding recommended next steps or considering alternatives.  

Get expert financial advice 

There’s a lot to consider when applying for equity release, including whether it’s right for your circumstances. 

Unbiased can quickly connect you with a qualified financial adviser or mortgage broker who can help you make an informed decision.