How Equity Release can fund home and garden improvements

Equity release can be a great financial tool to access the money tied up in your home. But how does it work when using it for home improvements?

Completing home improvements is one of the most common reasons people use equity release. Whether it is for general decoration or a structural change to your property, you can release a lump sum of money which does not need repaying until you pass away or move into long-term care.

Suppose you have your eye on a new kitchen, bathroom or anything else home related. In that case, there are some essential things you need to know about using equity release to fund it.

Can you use equity release for home improvements?

Equity release provides a lump sum of tax-free cash, which you borrow against your home, similar to residential mortgages.

However, there are some key differences:

• You do not need to make monthly payments - unless you want to. Instead, the amount you borrow, plus the interest charged over time, is repaid at the end of the plan.
• The amount you can release is not based on your income - instead, the maximum amount you can release is based mainly on your age and property value.

Typically, the plan ends when the last borrower passes away or moves into long-term care.

You can spend the money on anything you wish, including home improvements, which is the second most common reason people apply.

What to consider when using equity release for home improvements?

When using equity release for home improvements, you need to consider the type of improvement you make, as you may need to provide further documentation during your equity release application.

If you use the funds for general decoration, the lender will usually be satisfied.

However, the lender may request further documentation if you are making a structural change, such as building an extension.

Firstly, if the building works fall under "permitted development", the lender may request for a builder's quote to be obtained, including written plans.

However, if the works require planning permission, the lender usually requires you to obtain permission before releasing any funds.

Attaining planning permission will have upfront costs, so it is vital to consider that the lender could still refuse your equity release application once they review the documents or for other reasons.

How much money do you need?

You should also consider whether you will spend all the funds soon or if you will spend them over several years, as it will impact the type of plan that may be most suitable.

There are two types of lifetime mortgages (the most popular type of equity release).

• Lump sum
• Drawdown

A lump sum product is most suitable when you plan to spend the funds in the near future.

A drawdown plan may be more suitable when spending it over several years. Let's see why.

A drawdown plan allows you to release an initial lump sum and place a pre-agreed amount into a reserve facility.

The lender does not charge you interest on the amount held within the reserve until you withdraw from it, typically in minimum amounts of £2,000.

Of course, a drawdown plan may not be suitable for many home improvements, but it can be ideal for something like maintaining a garden by hiring a gardener.

Your property valuation when using equity release for home improvements

It is essential to consider your property valuation, as it impacts the amount you can release and the corresponding interest rate.

When using equity release funds for home improvements, your property will be valued as it is when the surveyor visits, not how it will be after the work is complete.

Therefore, when using any calculators, or speaking with an equity release advisor, use a realistic figure as if the surveyor visited today.

There may be options for you to have an additional survey conducted after the works are complete to allow further funds to be released. You should discuss this option with your equity release advisor if it is something you wish to do.

The property must also be deemed habitable by the surveyor. So removing a kitchen or bathroom before applying for equity release to install the new one could result in the lender refusing you equity release.

I have spoken with clients who have already started works and run out of funds and have been unable to take equity release until the works have been completed to the point of being habitable.

What is the process of getting equity release for home improvements?

Getting equity release for home improvements is largely similar to any other equity release.

But there could be a couple of additional steps depending on the type of work you are having completed.

Typically, your application process will look like this:

	Week	Stage
Total of 8 weeks	1	Equity release advice & submitting your application
	2	Your property valuation
	3	The formal mortgage offer
	4	Equity release legal advice
	5
	6	Requisitions (legal queries)
	7
	8	Completion (you get your money)

However, suppose you need to provide additional documents, such as planning permission, builder's quotes or building regulations. In that case, the lender may need to review the documents before making a formal mortgage offer.

This will typically take around one week.

Occasionally, the lender may need to refer the documents back to the surveyor for their comments. This could extend the process by another week.

In summary, depending on the type of home improvements, you can expect the application to take between eight to ten weeks.

Equity release to pay for an extension

Extending your property can be a great alternative to upsizing and going through the rigmarole of moving.

It can also increase your property value, increasing the amount left to your beneficiaries.

But what do you need to know?

Contacting a builder to know if planning permission will be required or if it will fall under permitted development will be essential.

Usually, small, single-storey extensions will be a permitted development, with larger extensions requiring planning permission - but don't rely on this; you should get an expert opinion.

Once you know the cost and permissions required, you will be ready to speak with your equity release advisor to find a suitable plan.

Equity release to pay for a new kitchen

New kitchens won't need any planning permission or building regulations. Therefore, the lender will not request further documents, and the equity release process can be completed as any other would.

So if you have your eye on a new kitchen, contact us on 0207 158 0881 to see if equity release is the right solution for you.

Equity release to pay for a new bathroom

Again, the lender won't require additional documents to install a bathroom. Still, ensuring the bathroom is at least habitable before a surveyor visits your property is essential.

Equity release to pay for a loft conversion

Loft conversions will always need planning permission.

The lender will want proof that you have been granted planning permission, and any building regulations/builder's quotes will need to be provided too.

As I mentioned, this could come with upfront costs before knowing that the lender will provide you with the funds.

However, there is no way around this if you tell us that you wish to use the funds for a loft conversion.

Equity release to pay for home adaptions

Although the lender will not require you to provide further documents for most home adaptions, government grants could offer a better alternative that is always worth considering.

These grants are called Disabled Facilities Grants (DFG).

Types of home adaptions that the grant could help with include:

• Grab rails
• Ramps
• Wet room
• Stairlift
• Widening doorways

However, successfully applying for a grant can be challenging, so many people turn to equity release instead. It can be a great solution. However, I suggest you explore these first.

Making your home more eco-friendly with equity release

Nowadays, many people are looking to make their homes more eco-friendly to help the environment and reduce the rising monthly utility costs.

Equity release can provide you with the necessary funds.

Solar panels

Solar panels are acceptable to all lenders if you fully own them. You will usually be asked to provide a receipt or proof of ownership.

However, if the solar panels are leased, the lender will require the lease conditions to be acceptable.

They may require you to provide the lease agreement as part of your application process to allow their solicitors to review it. If the solicitors are unhappy with any aspect, they will request that the lease be altered.

While this sounds scary, it usually isn't. This is because older leases have unfair contract terms that need updating.

Other changes to your property could include the following:

• Installing double-glazed windows
• Installing new insulation in the loft and walls

You could get a lower interest rate if your property has a valid Energy Performance Certificate (EPC) rating of A or B.

One lender, Just Retirement, offers a reduction in the interest rate on one of their product lines for energy-efficient homes.

You must submit the EPC at the application stage, but the lender will contribute £50 to the cost of obtaining one.

The £50 is paid as cash back when you receive the rest of the funds. Importantly, cashback is non-interest-bearing, so there is no extra cost to receive it. Plus, even if you already have a valid EPC, the lender will still pay this cash back.

Can you make home improvements if you have an equity release plan?

You can make many different home improvements if you already have an equity release plan, but sometimes you will need to request permission from the lender.

Any work completed that changes the structure of your property may need prior approval. This could include providing additional documents, such as planning permission, building regulations, and builder's quotes.

However, other improvements, such as replacing a roof, may also need approval, as the lenders may require you to provide a certificate/warranty for the work.

In summary, any work that could change the lender's security will need approval first.

Therefore, I always suggest contacting your lender before making any significant home improvements beyond general decoration and gardening.

If you don't, and the work completed no longer meets their criteria, you could breach your mortgage contract.

This could also mean that you are unable to release any additional funds until you rectify any breach. So it is always worth speaking with your equity release lender prior to carrying out any structural home improvements.

What are the downsides of using equity release to pay for home improvements?

The main downside of equity release to fund home improvements is the potential cost it could have on your estate.

Equity release plans are designed to run for the rest of your life.

Therefore, if you are at the youngest eligible age of 55, you could expect the plan to run for 25+ years.

During this time, you don't need to make monthly payments - unless you want to.

Instead, the interest rolls up over time and is repaid when the last borrower passes away or moves into long-term care.

This reduces the amount passed to your beneficiaries when you eventually pass away.

When applying for equity release, we recommend you speak with your family to avoid surprises, but it is not required.

Can you be refused equity release for home improvements?

Most home improvements are perfectly acceptable to a lender and even sought after. When you improve your home, you are improving the lender's security.

However, there are times when a home improvement could cause you to be refused equity release.

If any work you complete or plan to complete causes the property to be outside of lending criteria, the lender will not provide the funds.

An example we have already looked at is solar panels. If the lender does not agree to the terms specified within the lease agreement, they can refuse your equity release.

Another example is building an annexe. Although lenders accept annexes, the lender may refuse to lend you any funds if it is constructed of non-standard materials.

Therefore, discussing any planned works with your equity release advisor is essential.

While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor tax advice and should not be relied upon.

To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.