Equity release Under 55: Your options explained

Equity release can be a great financial solution for many, but have you got access to it under 55?

Equity release is unavailable to people under 55, as you must be at least 55 to qualify. However, if one homeowner is over 55, there is the option to take sole ownership and apply for equity release in one person's name. You may apply for equity release now if your 55th birthday is within six weeks.

At age 55, it is essential to know your full options when releasing equity from your home.

Can you get equity release under 55?

You cannot get equity release under 55.

Equity release is only available to UK homeowners aged 55 and over.

For jointly owned properties, you must both be over 55. However, there could be an option if one of you is over 55 and the other is under.

Sole equity release application where one borrower is under 55

Although you cannot get an equity release when one applicant is under 55, you could make a sole application if one is 55 or over.

You must fully own the property to apply for equity release in a sole name. If you are currently joint owners, the individual under 55 must transfer their ownership to the person over 55 during the equity release process.

If the sole applicant passes away or moves into long-term care, the other party must repay the equity release lender or vacate the property and find new living arrangements. However, the survivor may have the option to use equity release to raise the funds. This will depend on several factors, including:

• How old they are at the time the homeowner passes away
• The equity release balance
• How property prices have performed since the original homeowner released equity

Your equity release advisor will be able to best advise you on how to proceed and discuss the full financial impact equity release as a sole applicant could have on both of you.

If you decide to apply, you must instruct solicitors to act on your behalf, just like any other equity release application. The individual transferring ownership must also get independent legal advice to ensure they understand any legal impact of transferring ownership. This could involve signing an "occupancy waiver", which waives the right to claim the property (such as squatter's rights).

Equity release plans when aged 54

You can apply for equity release when aged 54 if you are within six weeks of your 55th birthday. Most equity release lenders will only provide the funds when you turn 55; however, some will allow you to complete at 54.

If you are within six weeks of your 55th birthday, or you wish to plan for the future, you can contact us on 0207 158 0881 for a free no-obligation equity release consultation.

Residential mortgage to release equity under 55

Although equity release products are not available under 55, you can still release equity in the form of a residential mortgage. We refer to this as remortgaging.

Unlike equity release, residential mortgages are affordability assessed. The lender must know your income details and liabilities (debts and regular outgoings).

Remortgaging can provide you with a lump sum of cash as a first charge secured against your property.

In contrast to equity release, you must make mandatory monthly payments (hence why they are affordability assessed). Typically, most lenders will calculate around 4.5 times your annual household income - but do not rely on this as several factors determine the amount you can achieve.

Most mortgages will have a term, meaning you must repay it by a specific date. The payments are typically spread over an agreed period, allowing you to cover the interest and reduce the capital (the initial amount) over time.

What if I already have a mortgage?

If you already have a mortgage, you may be able to get further borrowing from your existing lender.

Alternatively, you can get a new mortgage by replacing your current one. However, be careful, as you might incur Early Repayment Charges.

Interest-only mortgage to release equity under 55

Releasing equity with an interest-only mortgage could be a great alternative to equity release when under 55.

Unlike equity release, you must have a repayment strategy, as you only make monthly payments to cover the interest.

The lender will need their money back at the end of the term. Acceptable repayment strategies include:

• Cash saved in a savings account or ISA
• Stocks and shares ISA
• Pensions
• Investment bonds
• Shares
• Unit trusts
• Endowment policies
• Selling other properties or assets
• Downsizing

Although not listed above, equity release can be used to repay the interest-only mortgage. However, the lender will not accept this as a formal repayment strategy, as they cannot be certain you will be eligible.

If you seek a plan to last for the rest of your life, with no pre-agreed term, a type of mortgage called a Retirement Interest Only (RIO) could be your solution.

RIOs become available to those over age 50 and are designed to run for the rest of your life. They only require you to repay the initial lump sum when the last borrower passes away or moves into long-term care - similar to equity release.

Until that point, they act like a conventional interest-only mortgage, meaning you must make mandatory monthly payments until the end of the plan.

Equity release to give early inheritance to beneficiaries under 55

You can use equity release to gift an early inheritance to beneficiaries under 55 without restriction, and it is one of the most common reasons to use equity release.

We often see clients gift an early inheritance to help children get on the property ladder. However, with rising living costs, it is becoming more common to help with day-to-day living.

Not only could it be helpful for your beneficiaries, but it could be a tax-efficient way to reduce inheritance tax for high-value estates.

As inheritance impacts beneficiaries instead of you directly, I recommend involving them in the equity release process. Our advisors are happy to speak with beneficiaries directly, whether over the telephone, zoom or face-to-face.

Other alternatives to equity release when under 55

When under 55, there are several alternatives which your equity release advisor will fully explore with you.

These include:

• Selling or releasing money from other assets
• Remortgaging
• Potential help from family (including asking family members to take equity release to gift an early inheritance)
• Government grants
• Moving to a cheaper property
• Checking if you can claim any benefits
• Renting out a room
• Tightening your budget
• Changing employment or returning to work
• Releasing funds from a private pension
• Unsecured loans
• Second charge loans

Let's explore some of the most realistic options for most people.

Moving to a cheaper property

Downsizing can be an great alternative to equity release.

It can help repay a mortgage or provide you with the extra funds you require to do with as you wish.

However, it is essential to remember that future house price growth may be reduced when you downsize.

Most properties in the UK have increased at a similar rate; in recent years, this has been around 3%.

A 3% increase on a property value of £300,000 is more than that of a property worth £200,000.

For a full comparison between equity release and downsizing, click here.

So if you can remain in a property of higher value, it might be the most cost-effective option for your estate.

Unsecured Loans

An unsecured loan can be a great option when you need a smaller amount of money (up to £30,000). Typically, they have little "set up costs", but the interest charged can be high.

Usually, unsecured loans are best for those still working or guaranteed income from pensions / let properties, as payments are mandatory.

Second-charge Loans

These are only available for people who already have a mortgage.

Instead of releasing additional money with your existing mortgage provider, you can get a second-charge loan.

They act similarly to a mortgage, but you will need permission to be granted by your existing lender. Most mortgage lenders accept them, but I recommend speaking with a second charge specialist.

We work closely with Norton Broker Services. You can visit their website here.

Selling or releasing value from other assets

Now, I am not suggesting you sell your family heirlooms, but perhaps you have a valuable car or paintings up in the loft collecting dust.

Selling these could tie you over when you need the money for other things.

Releasing value from other assets is known as secured loans. A secured loan is usually against your home, but you can use other assets as collateral for a lender.

If you do not make the mandatory monthly payments, the lender has the right to take the asset away from you.

It is important to consider how this could impact your assets and ensure you can afford the payments.

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.