Can I Rent Out My House If I Have Equity Release On It?

Before we answer the frequently asked question ‘can I rent out my house if I have equity release?’, we want to discuss the concept of equity release to give a general background for anyone who is new to this scheme.

Equity Release is a scheme that allows people who are over the age of 55 to utilise their assets as a way of earning money. Put simply, they can release money from their property to spend on whatever they would like.

Given that over 70% of retirees in the UK are homeowners, this scheme works well for many people in their later years, as despite owning a valuable home, they may not have money readily available to them until they take out equity (1).

There are many things that equity release loans are used for as there tends to be no obligation to spend the cash on a specific thing unless the customer has selected a specific equity release plan with a purpose. This means the money could go towards big projects, bills, holidays, home improvements, donations, or monthly top-ups.

However, if homeowners select a specific scheme such as a second home plan, they will be expected to conform to the expectations of the scheme i.e. purchase a second home with their equity release loan.

It goes without saying that you should choose a more general plan if you do not yet know what you want to use the money for.

Another important thing to note is that some people choose to receive their loan bit by bit, so this could either be in monthly payments, or the homeowner could withdraw money as and when they need it.

Other consumers of equity release prefer to receive their loan as a lump sum of tax-free cash, particularly if they are spending the loan on a big project.

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Is There a Catch With Equity Release?

We do not shy away from discussing the disadvantages of equity release as we believe it’s important that you know about all the potential pitfalls before releasing money from your home.

We will say that what looks like a disadvantage to one person is an advantage for another, so the best way to find out whether you are a suitable candidate for equity release is to reach out to us for a tailored conversation that covers your personal situation.

In general, the ‘catch’ with equity release is that you are taking out a loan, and some people want to avoid this at all costs as it makes them feel as though they cannot enjoy their money. However, the difference with an equity release loan is that you are not expected to pay it back while you are alive, so a huge amount of pressure is lifted.

Another potential ‘catch’ is that there are limits to each and every loan, so what may appear to be a very flexible plan will always involve some sort of restriction.

For example, with a voluntary repayment arrangement, you cannot simply repay all of the loan whenever you want to, as you will usually have to wait until a certain period of time has passed unless you are prepared to pay repayment charges.

Finally, though you can protect some of your family’s inheritance with equity release, the reality is that you are dipping into it when you release money from your property, so some people are not comfortable with the idea that equity release limits the inheritance their loved ones will receive.

There are other ways to keep your family comfortable, such as having as many savings as you can, gifting them money from your equity release (which will be tax-free for seven years), or using your loan to purchase something practical and long-lasting for them, such as a deposit on a house or school fees.

For more information about equity release, do not hesitate to get in touch with us between 8am-8pm any day of the week.

You could also visit the Stepchange website for free impartial advice on how you could benefit from a lifetime mortgage or a home reversion plan (2).

Please call our 24-Hour Helpline: 0330 058 1579

Am I Eligible For Equity Release?

Sometimes, the eligibility criteria are quite complicated, so we would need to look into the specific plan you are interested in to find out whether you would be considered for equity release, as well as confirm that your chosen lender would accept you.

However, there are certain factors that are more obvious, and that you can figure out on your own before consulting an adviser. These are: you must be at least 55 years old (or 65 for a home reversion), you must own property, and the property must be worth at least £70,000.

Some other widely accepted rules are that consumers must have already paid off their existing mortgage (though this can be worked around), and your property must be approved after a valuation.

There are many checks that are involved with this, but the idea is that the lifetime mortgage lender must accept that your property will generate income for them when it is eventually sold.

Something to keep in mind is that your equity release application could be rejected for one scheme but accepted for another, so you may remain an eligible candidate for equity release but only for certain plans.

For example, if you are 60, you would not be entitled to a home reversion (as the minimum age is 65), but you could take out one of the many varieties of lifetime mortgage.

Please call our 24-Hour Helpline: 0330 058 1579

Can I Rent Out My House If I Have Equity Release On it: The Short Answer

No, unfortunately, you cannot rent out your home if you have already taken out equity. The only way that you could get around this if you have already released equity is by moving home and taking out a new mortgage, but this would usually involve paying an early repayment penalty to the equity release provider.

These penalties vary, but they can be as much as 25% of the borrowed amount, and this is simply not feasible for the average homeowner.

If you have not yet gone down the route of equity release, we advise against it if you know you want to start renting out your home. Doing this against the advice of the lender would land you in serious trouble.

Please call our 24-Hour Helpline: 0330 058 1579

Getting a Buy-to-let Plan

Again, if you haven’t yet taken the plunge and released equity secured against your home, something to consider is purchasing another home and renting it out with a buy-to-let arrangement.

This would require remaining in your current home and using your equity release funds to purchase the second home.

There is a fixed interest rate on buy-to-let plans, which means the interest may be higher than with other plans, but you know where you stand with it.

You could choose to pay off some of the loan before it is due, which would counteract the accrued interest, but this is not a requirement.

Can I Take Out Equity From My Rental Property?

Some homeowners already own rental properties and they would like to know whether it’s possible to release equity on them, perhaps because their rental property meets the requirements of a particular plan and their permanent home does not.

Our answer is no, this is unfortunately not a possibility. Equity release lenders require consumers to remain in their homes for the rest of their lives, so it is never possible to release money from a property that you will not be living in.

What Happens If I Want to Have a Lodger In My Home?

While a tenant is not allowed in an equity release property, a lodger may well be. You would need to check with your equity release provider to find out whether they allow this, but certain providers and certain plans do not prevent you from having a lodger.

However, you will most likely need to declare this to the lender and confirm that the lodger is prepared to leave the property at the end of the equity release scheme, which will be either when you die or move into long term care.

Please call our 24-Hour Helpline: 0330 058 1579

Are There Any Good Alternatives to Equity Release?

There are plenty of good alternatives to equity release, but they are not always appropriate or beneficial to everyone. We will outline some of the most popular alternatives so you can get an idea of whether they would be good for you and your family.

1. Means-tested State Benefits

Firstly, if you are in need of financial aid and you don’t know where to turn first, a great idea is to check whether you are eligible for means-tested state benefits. Many different websites offer this service with useful tools such as benefits calculators (3).

2. Pension

You may have access to a private pension, and this could help tide you over each month if you are struggling to make ends meet. Alternatively, you could withdraw a lump sum to put towards a larger purchase.

3. Budgeting

It’s possible that you have more money than you think, but you need to change how you are budgeting. Perhaps you need to have a tighter budget and put more into your savings each month.

4. Borrowing From Loved Ones

If you have this option available to you, we recommend that you try to go down this route as there are few risks if your family member trusts you and is in a position to lend money to you.

You may have even lent money to them in the past, and you would be giving them the opportunity to return the favour.

5. Renting Out a Room

If you are set on renting but you cannot rent your house with equity release, why not try renting out just a room? You could still earn a decent income from this, and it would be a reliable income that could boost your monthly earnings.

6. Grants

You may be entitled to a variety of grants depending on your personal circumstances. Some grants are available to people in their later years to put towards bills, particularly in the winter or other times that we tend to spend more on bills.

Other grants can be provided if you are improving your home to benefit your health, such as installing disabled-friendly items including a stair lift or a shower seat.

Please call our 24-Hour Helpline: 0330 058 1579

Call Us For More Information

Though we hope to have cleared up that you cannot rent out your house with equity release, you may have more specific questions that you still cannot find the answer to. If this is the case, we would like to help you explore these questions over the phone.

We invite you to call us on 0330 058 1579 or fill out our callback form and you will have access to a free consultation with us. If you have been let down by equity release advice organisations in the past, we want to reassure you that our specialists are highly experienced and extremely welcoming.

They know that it is not an easy decision to release equity, so they are non-judgemental in their approach, and if you ultimately decide to go with a different scheme, they will provide you with all the advice that they can and potentially point you in the direction of another specialist.

If you are eligible for equity release and you haven’t yet considered it, why not? There could be a significant amount of money tied up in your property, and until you take out an equity loan, you won’t benefit from it. Contact us today and find the right plan for you.

Please call our 24-Hour Helpline: 0330 058 1579

References

[1] Can I Rent out My House with Equity Release? Will a Tenant or Lodger Cause Trouble with Equity Release?

[2] How we help https://www.stepchange.org/how-we-help/equity-release.aspx

[3] Benefits calculator https://www.entitledto.co.uk/