More house owners are looking at equity release plans to free up funds from their properties for a variety of reasons. These may range from helping family members to get a foot on the property ladder to home improvements, holidays, or even private care.
One of the issues facing those looking to take advantage of equity release is whether they are eligible to apply, given that their property is owned as leasehold.
In England and Wales, freehold is the term used to refer to ownership of the property and the land it is built upon. In Scotland, the term used to describe such property is Feuhold. Leasehold refers to properties where the land it is built upon is retained by the landowner.
Leasehold property can be considered for equity release if there is at least 75 years left on the lease, but companies offering equity release have differing requirements.
Although some companies offer the minimum requirement, other major companies require leasehold length more commensurate with their regular mortgage offers. Legal and General, for example, need a 185 year unexpired period on the lease, while Aviva need the lease to be at least 160 years.
More2Life and Just Retirement still offer equity release with the minimum 75-year period, while Hodge requires a period of over 90 years.
One option for those seeking to release funds where their lease do not meet lender criteria is to extend the term of their lease. A leaseholder can ask for their lease to be extended whenever they wish. You may be able to extend by 90 years on a flat or 50 years on a house if you qualify. It is advisable to take legal advice, as this may be a complex process and you may be responsible for costs, including the landlord’s.
In both cases, the additional years are added on to the existing period outstanding on your lease.
Extra rules may apply to flats, depending on the contents of the lease, and there may be restrictions which affect the market value of the property.
Initially, the freeholder will obtain a valuation, upon which they will make an offer to either extend the lease or even to purchase it. Dependent upon the situation of the leaseholder, will determine which course of action they wish to take and the viability of whichever option they wish to pursue.
Extending a lease can have a significant impact on its value, particularly flats and apartments located in London, where property values can diminish where the lease term is nearing its natural end. For those looking to mortgage, or take an equity release plan, lenders will have a concern on short term leases and therefore impose minimum remaining lease terms.
There is some good news as every leaseholder is entitled to purchase or extend their lease, however the cost is determined by the landlord, albeit within certain guidelines. When needing to extend the term, or purchase the freehold, this can be carried out in conjunction with any equity release application. This would result in the lease extension or purchase to run concurrently with any equity release application, although the timing of both to conclude simultaneously can never be guaranteed.
The main point here is that lease extension for equity release purposes are acceptable to lenders and the process can be commenced before the transaction is completed. Again, advisers at Equity Release Supermarket have access to the whole lender database of providers and dependent upon your existing lease term, may still be able to find a lender that will accept the property on its existing terms. If not, then they can provide advice on how to begin the process of applying for equity release where an existing lease term is insufficient for mortgage purposes.