Can I rent out my property if I have equity release?

Renting out your property can be a great way to provide extra income, especially throughout retirement when your income often drops. But can you rent it with equity release?

You can rent out your property with equity release, but you must follow certain rules specific to your lender. Most lenders allow you to rent out your property informally to lodgers rather than formally to a tenant. However, if you have a formal agreement for a tenant, there is one lender who will consider it, Aviva.

Now that you may be able to rent out your property if you follow specific criteria, let's look at how these criteria can differ and what most lenders will allow you to do.

Can I rent out part of my property if I take equity release?

Most equity release lenders allow you to rent out part of your property informally. However, you will likely need to live in the property too. If you are not living in the property, it will trigger the end of the plan, which means you need to repay the lender.

The only exception is if you have a second home plan from Canada Life, which has been temporarily removed from the market.

If you rent out a part of your property which you receive a weekly or monthly payment from on an informal basis, the lender will class them as a lodger.

Lodgers are the most common way to have someone rent from you while you live in your home.

You can have a written agreement with a lodger, but it must not be legally binding.

Whereas, if you have a formal agreement, such as an assured shorthold tenancy agreement (AST), the lender will classify the individual as a tenant.

Only one lender, Aviva, allows a tenant to live with you, and they will want to review the agreement before releasing any funds.

The agreement must be an AST, and if there are any terms that they do not accept, you will need to change the agreement or end it entirely to complete the equity release.

Aviva also states that the area rented out must be self-contained, such as an annexe. Therefore, you will not be able to get an equity release if you rent or plan to rent a single room of your property formally.

Can I rent out my Annexe if I have equity release?

You can rent out your Annexe if you have equity release; however, specific criteria must be met. Again, these will be specific to your lender.

Most equity release lenders allow up to two lodgers to live in an annexe. Some require the Annexe to have through-access to the rest of the property, and some don't.

Remember: A lodger is someone who lives with you on an informal basis and pays you for a room or area of your home.

If the Annexe has a separate kitchen or utilities to the rest of the property, you should discuss this with your equity release advisor as it will impact plans available to you.

If you want to know if your property is acceptable for equity release, please contact us to complete research and contact lenders upfront before applying.

Renting your Annexe with formal agreements

Currently, only one equity release lender, Aviva, allows you to rent out an annexe with a formal agreement. It must be an Assured Shorthold Tenancy agreement (AST), the most common type of tenancy agreement.

Aviva will want to review the agreement before allowing you to rent out the Annexe to ensure they are happy with all the conditions.

If you already have equity release and are considering renting your Annexe, you will need to check your formal mortgage documents. We can help you with this free of charge, so please contact us by calling 0207 158 0881.

Can I rent to Lodgers with equity release?

You can rent to lodgers with equity release, which can be a fantastic way of topping up your income throughout retirement.

Most equity release lenders allow up to two lodgers to live with you, but some allow for more. The lodgers must sign a document called an "occupancy waiver". This waives the individuals' rights to stay in the property if you were not living there, protecting both you and the lender.

What is classed as a lodger?

A lodger is someone who lives with you on an informal basis but makes payments for "renting" a room.

Although it needs to be kept informal, you can have certain agreements drawn up, such as a lodger agreement.

A lodger agreement is a contract that grants permission for someone to rent out a room on your property for an arranged amount. It is the most common arrangement without the responsibilities and legal status of "landlord and tenant".

If you have a legally binding tenancy arrangement, the person living with you will likely be classed as a tenant, which limits you to one lender.

Can I rent out my second home with equity release?

A second home is often left empty for days or weeks, making it ideal for short-term rentals to increase your income.

The good news is that you can rent your second home, but as with all mortgages, there are specific rules you must follow.

If you have a second home with equity release, your plan will be with Canada Life, as they are the only lender that offers this type of equity release product. (Which has currently been removed from the market)

Canada Life state:

• If let out, it must be let out for only a maximum of 4 weeks at a time.
• You are not allowed to have any formal agreements or Assured Shorthold Tenancy agreements. Therefore, it must be completed on an informal basis.
• The property cannot be advertised, for example, through an agency or online.

You need to keep within these rules; otherwise, you will breach your mortgage contract.

Can you get equity release on rental properties?

You cannot get equity release on a rental property, as no lenders are currently willing to offer this product style.

However, you can use a mortgage to release the equity in a rental property instead.

Unlike equity release, a residential mortgage will require you to make monthly payments for which the lender will conduct affordability assessments. They will take into account the income from the rented property, so there should be some options available to you.

However, as this is a specialist subject, I recommend you speak with a mortgage advisor with experience dealing with rental properties. Please get in touch with us if you want us to pass your details to our trusted partner.

If, instead, you wish to take an equity release on your primary residence, you can use the funds to pay for anything you want to, including repaying mortgages on rental properties and carrying out home improvements.

Can you rent your home out with Airbnb with equity release?

You can rent out part of your home, or an annexe, with Airbnb if you have equity release. However, there are a restricted number of lenders who accept Airbnb rentals with equity release.

If you already rent your home with Airbnb, or are considering it in the future, you should discuss your plans with your equity release advisor to ensure any plan they recommend meets your ongoing needs.

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.