Unlike other forms of finance, equity release is not affordability assessed. So you may think that equity release lenders do not need to check your credit score.
But do equity release lenders still perform a credit check on you?
As part of an Equity Release application, the lender will perform a credit check on each applicant. An adverse credit score is unlikely to impact on your eligibility for equity release. However, most lenders will require any CCJ's and IVA's are repaid with funds from your equity release before you receive any net cash.
We now know that your credit report is going to be checked by an equity release lender. But when do they do this, and what are they looking for on your credit report? Let's dive into each of these topics in greater detail.
Before we start, if you are concerned that you have a low credit score, you should read my guide on How to get equity release with a bad credit rating.
In this guide, you will learn:
With all types of financial arrangement, lenders only wish to seek clients who can repay the funds lent. Equity release is no different.
The primary security for the equity release lender is the property itself. All equity release plans are designed to run until the death of the last borrower, or the last borrower enters long-term care.
You are also not required to make any repayments to the lender during the equity release plans existence. The lender is, therefore lending money over a much longer-term than many other forms of finance. Most likely the balance is increasing as time goes by (providing you are not making any voluntary repayments).
It is therefore fundamental to the lender that the property remains free from any other debts. There are multiple ways that this is achieved:
1. Your title deeds will be checked with HM Land Registry.
Any charges secured against your property will be noted on the title absolute. The most common charges will be for mortgages and secured loans.
All equity release lenders require that they are the sole first charge on the property. They will need any other registered charges to be repaid with the equity release funds before you receive any net cash.
The title deeds will also show any other parties who have registered an interest in the property. This could be for overdue bills or potential ownership disputes.
But this is not the only way that they check.
2. The lender will perform a credit check on you to check for any unsecured debts.
If you are up to date with your other financial commitments, there will be no issues.
However, suppose you have any outstanding County Court Judgements (CCJ's) or are in an Individual Voluntary Arrangement (IVA). In that case, lenders consider your application to be higher risk. This is because one of the unsecured lenders could place a charging order on your property, or attempt to force you to sell to repay the money owed.
It is therefore likely that if you have any CCJ's or are in an IVA, that you will be required to settle the debts as part of the equity release process.
Most lenders allow this to be carried out concurrently to the equity release, with your solicitors repaying the unsecured debts before sending you any net cash.
However, some lenders will require that you have a clean credit report before you apply. It is therefore essential that you discuss any overdue debts with your equity release advisor before they make their recommendation.
Remember: A bad credit score is not likely a problem. But not declaring any adverse credit will be!
It is common for the equity release lender to perform a credit check as part of initial application checks, before issuing a formal mortgage offer.
If any credit issues are noted, the lender may place a special condition on the mortgage offer that the debts are repaid as part of the equity release. Most often it will be the responsibility of your equity release solicitors to repay the debts before they transfer you any net funds.
Finally, before releasing any funds, all equity release lenders perform additional checks. Again, it is common for the equity release lender to perform a credit search on each applicant.
As you can see, it may be that you are subject to multiple credit checks as part of any equity release application.
Equity release applications are likely to take eight to twelve weeks. So performing a final credit check helps ensure that nothing has changed during the application process.
I recommend that if you are concerned about your credit file that you obtain a copy of your credit report before any equity release application is made.
I have used ClearScore for years and am happy to recommend them to you. Visit www.clearscore.com to receive your free credit report.
Firstly, if you have a poor credit score, don't worry, you will likely still be able to take out an equity release plan.
Equity release lenders do check your credit report, but it is not the most important factor. The lender is more concerned with the condition of, and future saleability of your property.
All equity release applications will require an independent surveyor checks your property, to ensure it meets their lending criteria. Your credit score has a much smaller impact on their willingness to lend.
However, as previously discussed, if you have any formal arrangements in place, you will most likely need to repay the debts before you receive any cash. This can usually be paid from the equity release proceeds, and typically will be paid by your equity release solicitor.
Debts that will likely need to be repaid include:
- Mortgages
- Secured Loans
- Charging Orders
- Outstanding County Court Judgements (CCJ's)
- Individual Voluntary Arrangements (IVA's)
Debts which will not usually need to be repaid include:
- Unsecured Loans
- Credit Card Balances
- Overdrafts
What's more, once you have cleared your outstanding debts, you will likely see an improvement to your credit score over time!
I have written a full guide on How to get equity release with a bad credit rating. Click here to read the complete guide.
You may be in the position of having no credit score. It is not uncommon for equity release clients to have no mortgage, loans, or credit cards.
Having no credit score will not impact on your equity release eligibility. The lender will check that you own the property from HM Land Registry, or by asking for your title deeds (if your property is not registered).
Your application will then be able to proceed smoothly. And possibly more quickly than if you had any existing mortgages (as they would need repaying as part of any equity release).
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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