Equity release with bad credit

Equity release is a popular option for UK homeowners who are looking to access the equity tied up in their property. However, if you have a poor credit score, you may wonder whether you are eligible for equity release. If you are looking into your options of arranging equity release with bad credit, the answer is not straightforward, but in this insight, we'll explain what you need to know.

Key Takeaways

• Equity release applications can be looked at on a case-by-case basis.
• It is possible to be approved for equity release if you have been declined for a mortgage or further advance.
• If you have plenty of equity in your property, your chances of approval will be higher.
• You can consider releasing equity to repay your bad debts. You should speak to an equity release adviser to understand if this is a sensible option for you. You may end up paying a lot more interest from your estate than you would if you continued as you are.

Equity release is a way to access the money you have built up in your home without having to sell it or move out. This can be a useful option for homeowners who are retired, living on a limited income, or who want to use the money to make home improvements or pay off debts.

It's not uncommon to have bad credit in the UK, actually In England and Wales in 2022, there were approximately 24,000 bankruptcy orders registered. - ONS. That means you aren't alone and if you have made mistakes in the past. Now you might be looking at your options for borrowing and struggling. That's where equity release could step in.

In most cases, you can get equity release with bad credit if you can put forward a strong case. That would include:

• Have a low outstanding mortgage balance.
• A large amount of equity in your property. 
• Be of a reasonable age and of good health.

 However, if you have a history of missed payments or other financial problems, expect that it may add further complexity to the application, and that might require more time for completing it.

What is bad credit?

Bad credit refers to a person's credit history and financial reputation. It's used to describe someone who has a history of making late payments, defaulting on loans, or having other financial issues. Essentially, it means that the person has a lower credit score. Credit score is a number that represents your creditworthiness.

A lower credit score can make it more difficult for someone to get approved for loans, credit cards, or other financial products. In the UK, credit reference agencies like Experian, Equifax and TransUnion collect information about a person's financial history and use it to calculate their credit score. If you have bad credit, it's important to take steps to improve your financial situation and work towards a better credit score.

Can you get equity release with bad credit?

Yes. You can get equity release with bad credit. It's unlikely that bad credit will impact your chances of being approved for equity release. Although the different types of bad credit will affect eligibility differently, you'll be able to put forward a case for approval if you have equity available.

Let's consider the possibility of equity release with different types of bad credit:

Can you get equity release if you have previously been made bankrupt?

Yes, it is possible to get equity release if you have been declared bankrupt in the past. However, lenders will take your bankruptcy history into consideration when assessing your application. They will want to ensure that you have a stable financial situation and that you will be able to keep up with any repayments. If you have been discharged from bankruptcy, you may need to wait a certain period of time before you are eligible for equity release.

Can you get equity release with current CCJs?

Yes, it is possible to get equity release with current County Court Judgements (CCJs) in the UK. However, having a CCJ on your credit record may make it more difficult to get approved, as it shows that you have a history of failing to pay your debts. Lenders will take this into consideration when assessing your application, and they may ask for additional information or require you to provide a co-signer to help secure the loan. It's important to note that each lender has its own eligibility criteria and underwriting standards, so the specific requirements for getting equity release with a CCJ may vary. 

Can you get equity release with an IVA?

Yes, it is possible to get equity release with an Individual Voluntary Arrangement (IVA) in the UK. An IVA is a formal agreement between you and your creditors to repay your debts over a set period of time. Although having an IVA may impact your credit score and make it more difficult to get approved for certain financial products, it is possible to get equity release if you meet the lender's eligibility criteria.

It may be required that as part of the equity release agreement you arrange to clear any outstanding debts in order to clear your IVA or CCJs. Some lenders will insist on this being a condition of your loan. That means the application won't proceed unless this is agreed. 

Why is it easier to get approved for Equity release with bad credit, than a Mortgage?

Equity release is typically easier to get approved for with bad credit than a mortgage, as the lender's main focus is on the value of your property, rather than your credit score or financial history. With equity release, you are using the equity in your property as security for the loan, so the lender is able to offer the loan even if you have a poor credit history.

In contrast, a mortgage is a loan secured against your property, but the lender will also consider your credit score and financial history when assessing your application. If you have bad credit, it can be more difficult to get approved for a mortgage, as the lender may see you as a higher risk. Additionally, if you are approved for a mortgage with bad credit, you may be required to pay a higher interest rate

Using Equity release to repay bad debts

You can use equity release to repay your bad debts. Equity release allows you to access the equity (the money you have built up) in your property, without having to sell it. You can use the money you release to repay outstanding debts, cover living expenses, make home improvements, or for any other purpose you choose.
However, it's important to consider the potential impact of taking out an equity release loan on your long-term financial situation. Equity release products typically come with high interest rates and long repayment terms, which can significantly reduce the value of your estate. Before taking out an equity release loan, it's important to consider your other options for debt repayment, such as debt consolidation or working with a debt management company. 

Seeking Advice on equity release with bad credit

It's important to note that while equity release may be easier to get approved for with bad credit, it is still a significant financial decision that can have a long-term impact on your financial situation. Before taking out an equity release loan, it's important to consider your other options and to speak to an equity release adviser who can help you understand the options available to you and assess whether equity release is a suitable choice. 

For more information on Equity Release and credit scores, read: does equity release affect credit score?

If you are unsure where to start with seeking advice, you can complete the Sunny Avenue Fact Find. The answers you provide help us to find the best-suited equity release adviser for your needs. They contact you for a no obligation conversation on how they can help. You decide how to proceed.

FAQs