Can I release equity from my house under 55?

Equity release can be a great way for homeowners to access money tied up in their property. With an equity release plan, you get a cash lump sum that you can use for a multitude of reasons, from paying off a mortgage to home improvements.

But although equity release may seem like the wave of a fairy godmother's magic wand, there are restrictions in place to protect both the lenders and applicants.

The biggest restriction is the age limit. To get equity release, you must be over the age of 55. However, most lenders will offer different alternatives to equity release so those under the age limit have other ways to raise funds.

In this article, we'll take you through everything you need to know about equity release and its alternatives, from why people get equity release, to the other options available if they don't meet the eligibility criteria.

Let's dive in!

What is equity release?

The equity release process allows you to cash in some of the value of your home. It's usually only offered to homeowners in the UK aged 55 or over because they were designed to be used as extra retirement income.

Most equity release schemes are based around lifetime mortgages, which has a minimum age limit of 55. Other home reversion plans require you to be at least 60, so an equity release scheme offers the youngest minimum age.

The amount of equity release you can access from your home depends on your age and the value of your property. You will also need any existing mortgage to be cleared before you can claim equity release.

There are different types of equity release, including:

Lifetime mortgage

With a lifetime mortgage, you take out a mortgage secured on your property (as long as the property is your main residence), but you're still able to keep ownership.

You can choose to make repayments or let the interest accrue, but the total amount of the loan is paid back by selling the property when the last borrower dies or when they move into long-term care.

Home reversion

With a home reversion, you sell part or all of your home to a provider in return for a lump sum or regular payments. This means you have the right to stay living in the property until you die, but you have to agree to maintain and insure it.

The percentage you keep will stay the same despite how the property market changes your home’s value (unless you decide to take further cash releases).

Then, when the last borrower dies or moves into long-term care, your property is sold and any sale proceeds are shared according to the proportions of ownership.

Enhanced lifetime mortgage

An enhanced lifetime mortgage, also referred to as an 'impaired' lifetime mortgage, is an equity release scheme where the lending criteria is based on your personal health. You'll be given a health and lifestyle questionnaire and how much money you're allowed to release will depend on the answers you give.

Equity release mortgage

An equity release mortgage is when a lender gives you money in return for a share of the proceeds when you sell your property at a later date.

Unlike a traditional mortgage, where you pay back the money over an agreed period of time, your equity release mortgage won't be settled until after you've moved out of your home.

Why would you use an equity release plan?

Because an equity release gives you access to some of the cash tied up in your home, you get a tax free lump sum which can help fund a number of different things, from home improvements to mortgage buyouts.

Can I get equity release under 55?

The short answer is no. You have to be over 55 to get equity release in the UK. However, there are other options for those younger than 55 who want to borrow money against the value of their home without using full equity release plans.

Applying for equity release under 55

Most equity release lenders won't give you equity release under 55. However, you can apply for equity release within six weeks of your 55th birthday.

Speak to an equity release advisor

Before you make any decisions about how you want to release equity, it's really important to speak to an equity release advisor. They'll be able to advise you on which mortgage deal works best for your needs, and which is the most cost effective.

Plenty of popular lenders offer equity release products, including:

• Natwest equity release.
• Lloyds equity release.
• Halifax equity release.

A mortgage broker will be aware of all the available options to you and find competitive interest rates to best suit your needs.

Why can't you get equity release under 55?

The main reason equity release providers have age limits is to control and limit their exposure to risk, and make them commercially viable.

A lifetime mortgage, for example, involves your equity release provider lending you a sum of money which is repaid when you eventually sell your home. The loan accrues interest over time, and this interest could eventually be more than the sale value of your home. (Though most lifetime mortgages have no negative equity guarantee, which means the loan repayment can't be more than 100% of the sale value).

So to ensure the equity release provider doesn't lose more than they gain, they have to set an age limit for those who can take out a lifetime mortgage.

Other home reversion schemes pose similar restrictions with a lower age limit of 60. In this case, providers don't want to have to wait too long before being able to sell their share of the property and make a profit.

How to access equity release under 55

Remortgaging

Homeowners may remortgage in order to borrow a larger amount of money. Unlike equity release, you can remortgage while still making monthly mortgage repayments. It's always recommended to be nearing the end of your existing mortgage so you don't incur early repayment charges.

Find out more about remortgaging here.

Secured loans

Secured loans, also known as homeowner loans, refer to releasing value from other assets as collateral for a lender. Though a secured loan is usually against your home, it doesn't have to be. It could be another valuable asset like a vehicle. But with secured loans, the asset you used will have to be worth at least £10,000.

With secured loans, you'll also have to make mandatory monthly payments. Otherwise, your lender has the right to take the asset away from you.

Transfer equity

You may be able to use equity release products as a homeowner under 55 if you're in joint ownership with someone older than that. Through a sole equity release application, you can gift your share of the property to your co owner, which will make them the sole applicant for the equity release.

In this instance, you'll have to pay any Stamp Duty Land Tax if the amount transferred goes over the threshold. You'll also have to pay for any legal fees required to complete the process.

Of course, going down this route comes with a fair amount of risk, especially if you're not married to the other owner. If you transfer your share to a partner or joint owner you're not married to, you have no protection if the relationship were to break down, which means you could lose your share of the home, as well as any equity you have in the home.

If the sole application moves into long-term care or passes away, the other owner must repay the equity release lender. If they can't, they will have to vacate the property and find somewhere else to live.

There are circumstances in which the survivor may be able to use equity release to raise funds, depending on:

• Their age.
• When the homeowner passes away.
• The equity release balance.
• How property value has performed since the homeowner used the equity release product.

Similarly to any other equity release plan, you have to instruct a solicitor to act on your behalf. The person transferring ownership must also seek independent legal advice so they're fully aware of both the legal and financial impact of transferring ownership. For example, they may have to sign an occupancy waiver, which waives their right to claim the property in any way.

If at any point in the process you decide to change your mind, you can withdraw your application (usually for free).

Residential mortgage to release equity under 55

Another way to access equity release under the age of 55 is through a residential mortgage. This can give you a cash lump sum as a first charge secured against your property.

The mortgage lender will run an affordability assessment, which includes any income details, as well as any debts and regular outgoings. They'll also check your credit status to see if you have poor credit history; if you have bad credit, equity release through a residential mortgage will be much harder to acquire.

This is because (unlike equity release) you must make monthly repayments to your residential mortgage provider. So if your mortgage lender doesn't believe you'll be able to make these payments, you won't pass the affordability checks.

Most mortgages will also have a term, which means you need to repay it by a specific date over an agreed period. You'll also have to cover any interest accrued over time.

If you have an outstanding mortgage

You might be able to get extra money from your existing mortgage provider through further borrowing. You might also be able to transfer from your current mortgage to a new one with a new lender.

Interest only mortgages

An interest only mortgage is another alternative to equity release for under 55s. When you're releasing equity with an interest only mortgage, you only have to make monthly repayments to cover the interest.

Your lender will need the money back at the end of the agreed term. You can do this via a number of different ways, including:

• Cash saved in a savings account or ISA.
• Stocks and shares ISA.
• Pensions.
• Unit trusts.
• Investment bonds.
• Shares.
• Downsizing.
• Selling an existing property such as an investment property.
• Selling other assets.
• Endowment policies.

Equity release can also be used to repay debt from an interest only mortgage. But most lenders won't accept this as a formal repayment strategy because they won't be certain of your eligibility.

Release equity through a retirement interest only mortgage

A retirement interest only mortgage is for those who want a plan to last for the rest of your lifetime, with no pre-agreed term. They're available to people over the age of 50 and are designed to run for the rest of your life.

You only need to pay one lump sum when the last borrower moves into long term care or passes away (much like equity release). Until that point, they're like an interest only mortgage, meaning you must make monthly payments until the end of the plan.

Release equity to give early inheritance to beneficiaries

You can gift equity release as an early inheritance to beneficiaries under 55. Because it doesn't come with any restrictions, it's one of the most common reasons people use equity release.

For example, family members often gift an early inheritance equity release to help their children get on the property ladder or help with other large expenses.

It's also a tax-efficient way to reduce inheritance tax if you own a high-value estate.

Other alternatives to equity release under 55

Other alternatives to equity release under 55 include:

Downsizing

Downsizing, or moving to a cheaper property can be a great alternative to equity release if you're under 55. You can use the extra money to repay a mortgage, invest in something, or spend however you see fit.

You do have to be aware of the property market if you want to downsize. Future house growth may be reduced when you downsize, which means your new property may be lower in value (and this could affect things in the long-term).

Unsecured loans

An unsecured loan is a useful way to borrow a smaller amount of money. The maximum loan you can borrow with an unsecured loan is £30,000.

The interest charged on an unsecured loan can be high, so they're best suited to those still in employment or with another kind of guaranteed income.

Second charge loans

Second charge loans are only available for those who have a mortgage already. You can get a second charge loan instead of releasing equity with your existing mortgage provider. The loan is provided by a different lender, but you do need permission from your existing mortgage lender.

The second lender takes second priority, which means if your property needs to be sold, your original lender will get the first call of equity in the property.

The amount you'll be able to borrow on a second charge mortgage depends on how much equity you've built up in your home.

It'll also mean you have two mortgages on your property, so it's always better to speak to a mortgage advisor to ensure you have the funds to make the monthly payments.

Releasing funds from a private pension

Equity release funds from a private pension, commonly known as pension unlocking, refers to taking money from your retirement savings before you reach 55.

People are often advised against this because it can reduce the value of your pension by more than 50% if you don't meet very specific criteria.

You may be eligible to unlock your pension pot early if you're too ill to work, or have a terminal illness and less than a year to live. You may also have a protected retirement date as part of your pension plan (that would have had to have been granted before 6th April 2006). This is often for people in careers that will end a long time before state retirement age, like professional athletes.

How much equity can you release?

When you release equity, you'll usually get between 20% and 60% of the market value of your home, so the current property market will have a role to play in how much money you can get.

If you're thinking about equity release, there are a few things you need to consider. For example, you need to check whether you can release equity over several payments, or if you have to access the money in one lump sum.

You'll also need to check the age limit of the particular plan you want to go with, as they will vary depending on the scheme and provider you choose. The minimum age limit can be anywhere between 55 and 65.

You'll also need to consider the percentage of the market value you'll get if you decide to release equity. You'll get more equity the older you are, but again, it will depend on which provider you choose to go with.

Most homeowners will use an equity release calculator to work out how much money they'll get from their equity release.

Summary: Don't fret! Under 55s have other options

So, can you get equity release if you're under 55 years old? The short answer is no, you can't. There has to be minimum risk for the providers, and the way most equity release plans work require a certain level of restriction to ensure they're still financially viable for them.

It's not all doom and gloom though. There are plenty of other ways you can release equity from your home if you're under 55, from remortgaging and transfer of equity to residential and retirement mortgages.

But the best thing you can do is get advice from a professional who knows the ins and outs of the industry, and will be able to guide you towards the best plan for your situation.

Your property’s value is at the crux of equity release. It’s really useful to know how much your home is worth from the get go. Our Online Valuation Tool can give you your property value in just a few minutes. Check it out here!