Can You Get Equity Release on a Leasehold Property?

Wondering if you can get equity release on a leasehold property? You've come to the right place. We're here to clear up your confusion about this process.

In this article, we’ll explain:

• What equity release is.
• The difference between a leasehold and freehold property.
• How to get a realistic quote for equity release.
• Who can use equity release and what it’s used for.
• The criteria needed to get equity release on a leasehold property.

This guide explains leasehold eligibility and the conditions to check with the provider and your independent solicitor before proceeding.

So, let’s dive in and discover more about equity release on leasehold properties.

What is equity release used for?

Equity release is used by seniors as a way to make their later years more enjoyable and to help fund retirement. It may be used as a pot of money to pay for general living costs, or it may be earmarked for specific purposes, such as holidays, home renovations, private healthcare or something else.

A small group of equity release users give all or some of their loan money to family, usually to help them get on the property ladder. It can be comforting to see your money put to good use by loved ones who need it today rather than waiting for their inheritance, despite the amount they receive being reduced. 

Who can use equity release?

Most standard lifetime mortgages start at age 55, but some payment-term lifetime mortgages are available from 50 and require interest payments for an agreed period. Home-reversion minimum ages and all other eligibility rules depend on the provider. Check the youngest applicant’s age and the actual product criteria.

Generally, you must also be releasing equity from your main residence rather than a rental investment or holiday home. Although there may be a small number of equity release plans for non-main-residence properties.  

Eligibility depends on the product, age, property, credit circumstances and any required affordability assessment. Minimum property values and borrowing limits are lender-specific. An existing mortgage normally has to be cleared at completion, often using some of the released funds.

Equity release vs second charge mortgages

Note that equity release is not the same as second charge mortgages, which is an overarching term to refer to secured loans against your home equity, such as a home equity loan. 

Whereas equity release is exclusively for senior homeowners, a home equity loan is generally used by much younger people who want to add a second debt to their home separate from their residential mortgage. This is often done to help fund home improvements. 

Can you get equity release on a leasehold flat? (The quick answer!)

It is possible to take out an equity release plan on leasehold flats but it will depend on a few additional factors, not least the length of time remaining on your leasehold. 

To find out the specifics about leasehold properties and equity release, keep reading this guide! 

What are the different types of equity release?

There are two types of equity release available to applicable UK homeowners, namely home reversion schemes and lifetime mortgages. These should only be considered from companies that are authorised and regulated by the Financial Conduct Authority, and after consulting with an equity release adviser. 

1. Home reversion plan

A home reversion plan is a sale of part or all of your home, usually below open-market value, in return for money and the right to remain under the plan’s occupancy terms. It is not a loan. The provider receives its agreed share when the home is sold.

No loan interest is charged because the provider buys an ownership share. Its future entitlement follows that share and the sale agreement.

Illustration only: a provider buying a 60% share of a £200,000 home for £40,000 would receive 60% of the eventual sale proceeds. If sold for £200,000, that is £120,000 before relevant costs. It is a sale, not loan repayment.

2. Lifetime mortgage

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product.

Illustration only: £65,000 at 6.4% interest compounded annually without repayments becomes about £137,000 after 12 years, excluding fees. Actual repayment follows the plan’s terms.

It should be known that there are variations of a lifetime mortgage, including an enhanced lifetime mortgage that can be used by people with poor health and shorter life expectancies to take out more equity, typically to fund private healthcare. 

What is the catch with equity release?

Many lifetime mortgages allow interest to roll up without regular payments, but some require interest payments for a set period. Optional repayments, limits and any early-repayment charges depend on the contract. Costs, future flexibility and alternatives need careful assessment.

Costs can reduce your own future options and estate value. The effects matter even if you have no children or intended beneficiaries.

We illustrate just how expensive these loans can be in the sections below. 

What is the difference between a freehold and leasehold property?

The difference between freehold properties and leasehold properties is important, especially if you are buying a flat or house in the UK. 

When someone owns a freehold property, they own the property and the land it has been built on. The most common examples of freehold properties are houses, but it is still possible for a detached house to not be a freehold property. 

Leasehold ownership gives rights to occupy and use the property for the lease term, subject to its conditions. The freehold is a separate interest; the actual lease and title determine the rights.

Can you use equity release on freehold properties?

You can release equity on a freehold property using a lifetime mortgage or home reversion plan. Freehold properties are the easiest type of property to release equity from, but if the property does not meet standards or specific lender criteria, your application can still be rejected. 

Can you release equity from a leasehold property?

It is possible to take out equity release on a leasehold property but the lender will consider additional factors before agreeing to the lifetime mortgage or home reversion plan. They will need to consider any service charges, ground rent, any sell-on clauses, and the most important of all – how many years you have left on the leasehold. 

How many years do I need on my leasehold to release equity?

Minimum remaining lease requirements are provider-specific and may depend on age. Confirm the actual criteria rather than relying on a universal 75-,90- or 125-year rule.

A short lease may cause rejection or require an extension. Do not assume paying a higher rate will overcome the lender’s minimum criteria.

What if my lease length is too short?

A lease extension may be needed, with a premium, valuation and legal costs. Do not assume the 990-year statutory extension reforms are already available: check current commencement and eligibility with a specialist solicitor. GOV.UK currently describes the qualifying flat extension as 90 years.

Can I use equity release to extend my lease?

Some providers may permit a lease extension to complete alongside the mortgage, using part of the advance. This requires prior agreement and coordinated legal work; it is not guaranteed. See related guidance.

Timing depends on the extension route, freeholder, valuation and legal process. A universal six-month average should not be promised.

Can I get equity release if my flat has cladding?

Equity release lenders are more cautious than ever about giving lifetime mortgages on flats with cladding. Since the Grenfell disaster in London, cladding and combustible materials have been at the centre of attention on flat buildings. 

Building-safety concerns can affect valuation and lender acceptance. Ask what evidence and remediation arrangements the particular lender requires; no single certification guarantees acceptance.

Building-safety funding and leaseholder protections vary by building and UK nation. Check the applicable scheme and eligibility with the managing agent and official guidance.

Can I get equity release on a share of a freehold flat?

A share of freehold is different from shared ownership or jointly owning one flat. The flat may still have its own lease; the lender and solicitor must check the freehold structure, lease, rights and maintenance arrangements.

Owner and applicant limits depend on the provider. Do not remove an owner simply to fit criteria without independent advice on ownership, occupancy, tax and inheritance.

Does equity release affect your state pension?

Your state pension payments are unaffected when you use an equity release plan. This is because the state pension is not a means-tested benefit. 

Means-tested benefits are benefits that take into account your wealth to decide whether you are eligible to receive them, or how much you should receive. Therefore, taking out a large loan through equity release could push your wealth above the thresholds to receive some benefits, including Universal Credit and Pension Credit payments (a top-up to your state pension). 

Drawdown or rapid spending does not guarantee benefits eligibility. Obtain advice about capital rules, disregards and deprivation before acting.

Is equity release taxed?

A lifetime-mortgage advance is borrowed capital. A home reversion is a property sale, and later income, gains or gifts can create tax or reporting consequences.

However, releasing equity and giving the money to family and friends could have inheritance tax implications, which would be best discussed when you get financial advice.