Bad Credit And Equity Release

For some, using equity release to access money tied up in your home is a really useful financial tool. However, you may be wondering if this option is still available to you if you’ve got bad credit.

This guide covers everything you need to know about the relationship between equity release and your credit report. You’ll find out what to do if you’ve got outstanding debts, and which equity release providers will be willing to consider your application.

Keep on reading for all the details or click on a link below to jump to a specific section…

How does bad credit affect your equity release application?

Equity release doesn’t involve you making monthly repayments. So, lenders don’t have to factor that in when looking at your application. This means that bad credit or existing debt isn’t usually as much of an issue as it might be with other loan applications or mortgages. It is still possible for you to end up with the solution you want.

However, the type of credit issues you’re facing, and the structure of any existing issues could still make an impact on the loan. A poor credit rating can make it more difficult to qualify for certain schemes. But, don’t let your bad credit put you off the idea of applying altogether.

There are many lenders who aren’t comfortable with bad credit applicants. So, it’s vital you speak with the right ones who’ll be accommodating to your situation. Dealing with unsuitable lenders will increase the chances of rejection, and potentially lead to further unwanted negative marks on your credit file.

Examples of bad credit and debt issues

Your exact situation will be unique to your financial circumstances. There’s no umbrella answer to bad credit and equity release that fits everyone. So, the particular set of obstacles you’re facing can make an impact on how lenders will view your application.

Here’s some examples of the different ways that the source of the poor credit and debt could make a difference with your equity release application:

CCJs

Having a County Court Judgement (CCJ) against your name doesn’t always stop your application in its tracks. Yet, the treatment by different providers can vary.

Some may accept your application with the condition you settle these debts before they will release your funds. Others will give you a grace period (sometimes up to six months), during which you must repay your CCJ. Current CCJs affecting your credit score need to be part of the discussion, but solutions will still be available.

Charging order

Although a charging order appears on your credit file, you will still be able to qualify for an equity release scheme with some lenders. But, similar to CCJs, you may need to create a plan for repaying and satisfying the charging order within a designated time frame.

IVAs

If you’re using an IVA (Individual Voluntary Arrangement) to pay your debts, or if you’ve used this type of agreement in the past – it doesn’t always mean an automatic rejection for your application. But the poor credit implications can make an impact on the structure of any equity release arrangement involving your home.

Some lenders will want your IVA to be completely settled before you apply, whereas others will be willing for the IVA to be cleared upon completion. Part of your IVA may state you must look into releasing equity from your property during the final year to repay creditors. So, this wouldn’t make sense if no lenders were willing to let you borrow.

Typically, up to 85% of your home’s value can be used to assist with settling your IVA. A lifetime mortgage is the most common tool for releasing funds and meeting your debt obligations if you need to use equity.

Bankruptcy

If you’ve declared bankruptcy, this doesn’t guarantee you’ll be turned down for equity release. Some lenders will still be willing to work with you, but you’ll likely have to meet specific criteria. Most lenders will only consider your application once everything is settled.

This means you’ll have to be fully discharged from your bankruptcy, releasing you from your debt and any ongoing restrictions. This can take up to a year to sort, and your bankruptcy will remain on your credit report for six years.

Providing you’re fully discharged, bankruptcy issues leading to bad credit do not have to prevent your ability to release equity. But, it’s something that you will have to disclose during your application. So make sure you discuss your situation honestly with your broker, this way they can be sure to introduce you to the right lenders.

Arrears

If you have a mortgage with arrears, or other debts with arrears secured on your property – it’s still possible to qualify for equity release. You can then use the funds to pay off these debts.

For any unsecured debts like a personal loan, lenders will want details on any missed payments or back payments you owe. Unsecured loans aren’t linked to your property, but it’s still important for lenders to have the full picture of your current debts and credit problems.

Can you get equity release if you have existing debts?

Yes, this is possible. It will depend partly on the nature and size of your existing debts. But the support of an equity release broker means they can guide you on the best ways to make arrangements so that you’re still able to release equity. And ideally, put yourself in a stable financial position, with any existing debt under control.

Are you able to use the funds to pay off your debts?

Yes! One of the main benefits of equity release is that it can be a really efficient way for you to repay existing debt that’s hindering your finances. Depending on the type of debt, there may be rules and restrictions that need to be factored in. But overall, using money tied up in your home can be an excellent way to reduce your debt burden.

How an equity release broker can help

Securing funds using equity release is definitely still possible with bad credit. But the exact nature of your situation may lead to fewer lenders offering loans on decent terms. It will also limit the number who are willing to give you a deal with the best possible rates.

So, if you want to speak with the right lenders who can still provide a competitive loan – using a broker who specialises in arranging equity release for customers with bad credit is going to be a huge help. A skilled advisor will have existing relationships with lenders. This means they can introduce you to the ones who are comfortable with bad credit applicants.

A poor credit rating shouldn’t deter you from looking at equity release options. But, care still needs to be taken to make sure you find the best lender for your circumstances. If you want to speak with a specialist broker, just make an enquiry. We’ll set up a free, no obligation chat.

Can you get equity release if you’re unemployed or receiving benefits?

If you’re unemployed or receiving benefits, this might impact your credit rating. But it won’t always have a negative impact on your ability to qualify for an equity release product. However, keep in mind that the funds you receive can affect means-tested government support, such as Pension Credit.

What else can trigger an equity release rejection?

Although bad credit and existing debt are definitely obstacles you can overcome, there are still other areas that could hinder your application:

• Your age: to qualify for most schemes and products, you’ll need to be at least 55. Unfortunately, you may have to explore other options if you’re much younger than this.
• Construction type: regardless of your credit score, if your house is a non-standard construction, some lenders may not be comfortable offering a loan. This could be because the house has a partial flat roof, it’s built using a timber or steel-frame, or even if certain types of cavity insulation have been used.
• Home condition: this one may surprise you, but some lenders are not a fan of mess, clutter, and general untidiness within the home. This is partly because an untidy house can be difficult for valuers and surveyors to properly assess. There are some bad credit issues that will be outside your personal control. But, the appearance of your house is certainly an area where you can make a difference before applying for equity release.
• Property location: if your house is situated nearby a commercial property or development, some lenders will be unwilling to explore equity release options with you. Whether or not the house is in a flood-risk area will also reduce the number of available lenders. Location issues do not guarantee a rejection, so it’s best to discuss your specific property with your broker.
• House value: sometimes it’s only possible to access equity if your home is worth at least £75,000. But, there are some lenders who’ll still be willing to discuss options to release funds.

Speak with an equity release expert

Finding a suitable equity release lender who’ll still offer great deals to applicants with bad credit can be a tough task. Only some will be willing to tailor the arrangement to your situation and any current debt challenges you face.

We offer a free broker-matching service. This means we’ll take a quick look at where you stand with your finances right now, and then pair you up with an expert broker who’ll best fit your needs. This will be somebody who specialises in bad credit and equity release that we’ve chosen based on their track record helping customers just like you.

Just call 0808 189 0463 or make an enquiry. We’ll set up a free call between you and a skilled advisor. This way you can rest assured that you’ll end up with the best possible equity release outcome.