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Can You Get Equity Release on a Flat? – All You Need to Know

equity release on a flat

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Can you get equity release on a flat? 

With most elderly people living in houses, fewer people are asking whether you can get equity release schemes for apartments. The short answer is yes – but the long answer needs to make you aware of possible leaseholds issues and lease extension hurdles. 

Keep scrolling to uncover the details on releasing equity on flats in the UK. 

Can I take equity out of my property?

There are many ways to take equity out of your property. You may be able to do this with home equity loans and second charge mortgages, or older people can choose equity release schemes, including a lifetime mortgage. 

What is equity release?

Equity release is when elderly homeowners access a lump sum from their home that they do not have to repay until they die – i.e. from the property sale from their estate – or if they move into aged care. They can continue living in their property rent-free and cannot be evicted. 

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The two types of equity release

There are two main ways of releasing equity in the UK, known as lifetime mortgages and home reversion schemes. 

A lifetime mortgage is the most common. You take out a mortgage against a percentage of your property with a fixed rate of interest. But instead of making any payments whatsoever, the debt keeps rolling up and is paid after you die or move into long-term care by selling the property from your estate. You continue living in your home and cannot be kicked out, and you can never owe more from your estate than the sale value of your property, providing some reassurances to will beneficiaries. You can even opt in to make interest repayments to reduce the total debt. 

A reversion scheme is somewhat different. The company provides you with a loan for a percentage of your property’s sale value when it is sold (after death or after moving into aged care). The loan significantly undervalues the percentage of the property ‘bought’ but no interest is charged. This is so the lender can protect itself from declining property values and to make a profit. 

Who qualifies for equity release?

Each equity release lender has its own eligibility criteria. Most of the time, you’ll need to be:

  1. At least 55 years old, sometimes 65 years old
  2. Releasing equity on your main residence
  3. Have a property worth at least £75,000 without a mortgage (or very little mortgage)

Can you get equity release on flats?

Most equity release applications are to release equity on houses, so is it possible to release equity on a flat in the UK? 

The simple answer to this question is yes. You can release equity on a flat. It gets a little trickier depending on if it is a freehold flat or a leasehold flat. We discuss these scenarios below. You should always seek financial advice before making a decision. 

What is the difference between a freehold and leasehold property?

When you have a freehold property, you own both the property and the land it is built on. The most common example is a detached house. When you have a leasehold property, you own the property but you do not own the land it is built on. The most obvious example of a leasehold property could be a single flat in a block of flats. 

Can you get equity release on a freehold flat?

You can take out an equity release scheme on freehold flats. Because you own the flat and the land it is built on, it is relatively straightforward to get equity release on the freehold flat. However, you will also need to own the leasehold. 

Can you get equity release on a leasehold flat?

It’s also possible to get an equity release scheme on some leasehold flats with some equity release lenders. The lender will consider how long you have left on your current lease before making a decision. They will also consider any ground rent charges and other clauses applicable when the property is to be sold on. 

What if my lease length is too short?

Equity release providers generally need your lease to be of 75 years minimum to be allowed to use an equity release scheme. However, others may require a longer leasehold up to 125 years. If your lease is deemed too short, the lender will not be willing to let you use equity release with them. You will need to get a lease extension to be able to release equity with most lenders. 

What is the catch with equity release?

There isn’t a catch with equity release if you take the time to learn about how these schemes work. You can do this yourself online, such as websites like outs and the Equity Release Council website. 

It’s highly recommended that you get legal advice or financial advice before trying to release equity on a flat. Only use applicable service providers that are authorised and regulated by the Financial Conduct Authority. 

Can you be refused equity release?

As mentioned above, your equity release application can be refused on some leasehold properties if the length of your lease is too short. Any lease below 100 years is at greater risk of being a problem for equity release companies. 

But this isn’t the only reason you can be refused equity release. 

Companies can also reject your equity release applications for:

  1. Having a flat roof
  2. Being located in a flood risk area
  3. Non-standard construction
  4. The presence of asbestos
  5. Or even close proximity to commercial buildings 

You cannot be rejected because of a poor credit rating. 

MoneyNerd has more to tell on equity release!

This is just one of our many guides discussing equity release, how it works and much more. Learn all about releasing equity from all types of properties with your FAQs answered clearly. Start by typing your equity release question into the MoneyNerd search bar! 

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