Although equity release can pave the way to financial well-being in later life, things can get complicated when two or more people own a property together.
Equity release allows you to unlock the cash tied up in your home. It is available to homeowners over the age of 55 in the UK and can provide access to a lump sum of cash or a steady stream of income, using the property as security.
This article tries to unpick the complexities of equity release on a jointly-owned property.
How Does Equity Release Work?
The most common form of equity release in the UK is the ‘lifetime mortgage’. In a lifetime mortgage, you can borrow up to 50% of your home’s value as a lump sum or in a ‘drawdown’ facility, which enables you to withdraw funds in small amounts against the value of your home as you need them.
You don’t make any repayments on your equity for the duration of the mortgage, and when you die or move into long-term care, the money from the sale of your home is used to pay off your equity and accrued interest.
There is also another form of equity release known as a ‘home reversion plan’ which works slightly differently. In a home reversion plan, the lender buys a share in your property at below market value.
In exchange, they provide you with a tax-free lump sum or a steady stream of income. You continue to live in your property, rent-free, and when you die or move into long-term care, the lender recoups their investment by taking a share of the profits from the sale of your home.
Anyone over the age of 55 with property in the UK can apply for a lifetime mortgage. If you’re over 65, you can apply for a home reversion plan.
In both cases, the home you release equity on must be your primary residence.
Is Equity Release Possible on a Jointly Owned Home?
If you own your home with another person, such as a spouse or long-term partner, you can still apply for equity release. However, as joint owners, you both need to consent to the plan, because equity release is a legal charge taken out against the entire property.
Even if privately you agree to take out equity against just one partner’s half of the property, the law makes no such distinction.
You’ll both need to provide signatures when you take out the plan; as lenders will only grant equity to owners who have 100% ownership of a property, whether as joint owners or by combining their shares in a property.
Unfortunately, if you own a share in a property as a tenant, you cannot apply for equity release on just your share of the home if your co-tenants don’t want to join you.
For example, if you hold a 30% share in a home, you can not apply for equity release on your share, no matter how much it’s worth.
The only way you could secure equity release, in this case, would be to apply with the tenants who own the remaining 70% of the property.
What Happens When One of the Owners Dies?
In the UK, all equity release agreements run until the last surviving owner of the property dies or decides to move into long term care. This means the surviving partner can stay in the property as long as they like and will not be required to repay the loan or move.
However, the terms of the plan may change under certain circumstances after the death of an owner. One factor that can influence this is the type of ownership that the tenants held the property under.
Equity Release and Joint Tenancy
As joint tenants, both parties own the home outright, and there is no distinction between the share that one person owns versus the other.
In a joint tenancy, full ownership of the property automatically passes to the surviving owner when one of the tenants dies, and the equity release plan is unlikely to change.
Equity Release and Tenants in Common
Things might be slightly different if the property was owned by ‘tenants in common’. Under this model of ownership, each person’s share in the property is defined. When one of the owners dies, their share in the property gets passed into their estate.
What happens next depends on the Will of the deceased. If their share in the property is to be inherited by the other tenant, the equity release plan is unlikely to change.
However, if the deceased’s share of the property is left to another person, it could affect the equity release agreement. If there is a drawdown facility in place, it might be reduced or frozen.
It is essential to ask questions when you take out an equity release agreement about what will happen when one of the owners dies. You may wish to discuss it with a solicitor, as depending on the contract, you may want to make changes to your Will.
If you are the surviving owner in an equity release agreement, you might want to notify your solicitor and should inform your equity provider as soon as you can.
Can You Apply for Equity Release on a Jointly Owned Home if One of the Owners Has Already Died?
If you would like to apply for equity release after your home’s joint owner has passed away, you will need to wait for their Will to be enacted. This is because any equity release provider will need the consent of the property’s legal owners to enter into an equity release plan.
In order to do this, you will need to provide updated copies of the property’s title deeds, which allow the lender to make sure that the new owner, or owners, consent to the equity release plan.
The process of probate (handling debts and distributing inheritance) can take a while, but as soon as this is complete, you should able to apply for equity release.
Can I Do Equity Release if Other People Live in My Home?
When taking out an equity release plan, only the legal owners of a property need to sign consent forms.
However, if other people are living in your home, it is important to ensure they are aware of your plans because they won’t have the right to remain in the property when the legal owners pass away.
How Can Equity Tree Help?
Here at Equity Tree, we have partnered with some of the UK’s leading Equity Release broker companies.
They have already helped thousands of people release equity already, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these equity release companies, click on the below and answer the questions.