Updated 10 November 2020
Equity release – the process of cashing in some of the value of your home – is usually available only to those aged 55 or over. However, there may be other options for you to borrow money against the value of your home, without using full equity release products. Also, if you’re under 55 but your partner isn’t, there may also be a way for you to access equity release.
There are always risks and downsides to cashing in the value of your home, as well as advantages, so bear this in mind when considering the information here.
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The simple answer is yes, you do. Equity release schemes based around lifetime mortgages require the youngest applicant to be over 55, while those based around home reversion plans require you to be at least 60. This is because equity release is designed essentially to provide extra money in retirement.
That said, other options are available for those aged under 55, some of which are similar to equity release. Possibilities may include secured finance, transfer of equity, or remortgaging.
Equity release providers set a minimum age threshold to control and limit their exposure to risk. For example, if you take out a lifetime mortgage, your provider lends you a sum of money which will be repaid from the eventual sale of your home. This loan accrues compound interest over the years, which eventually could exceed the sale value of your home. However, most lifetime mortgages have a ‘no negative equity guarantee’ which states that the loan repayment can’t exceed 100% of the home’s sale value. Therefore, to ensure the provider doesn’t lose out too often, they have to set an age limit on who can take out a lifetime mortgage.
Similar restrictions apply with home reversion schemes. Here the lower age limit is usually 60, because the provider does not want to have to wait too long before being able to sell their share of the property and make their profit. In short, equity release schemes have age limits in order to make them commercially viable for the providers.
If you yourself are under 55, but own a home jointly with a partner who is older than that, then there is a way to use equity release if you decided you really need to. This is called transfer of equity, but in simple terms it means simply gifting your share of the property to your partner, so that they are the sole applicant for equity release.
Essentially, your share of the property is transferred to the person who is over 55. You will have to pay legal fees and Stamp Duty if the amount transferred is over a certain threshold. You should also carefully consider the risks of doing this. If you’re not married to the other homeowner, then transferring your share to them would leave you with no protection if your relationship were to break down (so you could lose your share of the home and have no right to any equity either). If you are married, and bought the home together after your marriage, then the home should count as a matrimonial asset even if you transfer your share of the property to your spouse. However, you should seek legal advice on this to ensure it covers your specific circumstances.
Note that if you still have a mortgage on your property you won’t be able to instruct your solicitor to transfer equity until you have contacted your mortgage lender. But in any case, you can’t use equity release unless you own the home mortgage-free, so you’ll have to wait until your mortgage is paid off.
Though formal equity release products are not available to anyone aged under 55, there are still ways you can get money to spend by leveraging the value of your home. One option is a secured loan. A secured loan is money that you borrow using one of your assets as security. This asset could be your home, or some other valuable asset such as a vehicle. Usually any such asset would have to be worth at least £10,000.
If you are looking to borrow a larger amount, you could remortgage to release equity. Although this sounds very much like equity release, it differs in that you can do this while still paying off a mortgage. To consider it, you should be near the end of your current mortgage term to avoid paying early repayment charges.
Remortgaging to release equity involves increasing your loan-to-value (LTV) ratio. It can be a popular option especially for people whose home have increased in value since they took out their mortgage. For example:
Mike bought his home for £200,000 using a £180,000 mortgage and a £20,000 deposit. At that time his LTV ratio was 90%. However, his house has risen in value and is now worth £250,000. He has also paid off £10,000 of the mortgage. So he now owns £80,000 worth of equity in the home, while his outstanding loan is £170,000. This means is LTV is now only 68%.
If Mike wanted to release some of that additional value, he could remortgage to an 80% mortgage of £200,000 that would give him £30,000 of money to spend while paying off the previous mortgage balance of £170,000. However, he would be paying off this new loan for longer.
Before considering any form of remortgaging, speak to an independent mortgage broker who can advise you on your options and find the best value products for you.
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