Can you get equity release with bad credit? 

If you have bad credit, it can sometime feel like you are limited on options when it comes to borrowing money, especially in later life. Fortunately, as we’ll discuss below, you may not be out of options and equity release and lifetime mortgages may be avenues to explore.  

An introduction to equity release 

At Bower Home Finance, we’re proud of the relationship we have built with our customers, from our award-winning experience in the equity release sector to our qualified independent equity release advisers, we’re here to help you find an option to suit your circumstances. The equity release application process is crucial, as factors like bad credit and County Court Judgements (CCJs) can impact the application process and the products recommended to you. 

As equity release specialists, we are committed to providing expert guidance and tailored advice to help homeowners make informed decisions about unlocking the value of their property. 

Whether you’re transitioning into retirement and you don’t qualify for a standard loan, or you have a history of missed loan or mortgage payments, and have exhausted your options, our independent advisers are on hand to help you explore equity release and later life loan options. 

What is an equity release plan? 

Equity release is a financial solution that allows homeowners over the age of 55 to access the wealth tied up in their property, either as a lump sum or through a drawdown facility to access later as and when you wish. 

There are different types of equity release products available, including lifetime mortgages and home reversion plans, each offering unique benefits and considerations. Equity release schemes can be particularly challenging to navigate for individuals with a poor credit history, and it is advisable to consult a specialist adviser to navigate these difficulties effectively. 

Types of equity release products 

Equity release products can be tailored to individual needs, including fixed interest rates and flexible repayment options. It’s crucial to understand the different types of equity release products and their implications on your property value. 

Home reversion plans 

A home reversion plan involves selling part or all of your property to the lender at a discounted price. If there is any debt secured against the property, it must be addressed using the funds from the equity release, which can limit the available amount for other intended uses. The funds will then be available as a tax-free lump sum or in a drawdown facility to access later. 

The lender will then reclaim the percentage originally sold when you pass away or move into long-term care at market value, with any remaining funds being passed to your estate. 

Lifetime mortgages 

As one of the most popular types of equity release, a lifetime mortgage allows homeowners to borrow against their property while retaining ownership. You can receive the funds released as a lump sum or in a drawdown facility to access later. When you pass away or move into long-term care, the lender will reclaim the amount owed, in addition to any accrued interest, often through the sale of your home. 

These equity release funds can be used for a range of purposes, such as paying off existing debts, including mortgages and credit card debts, funding home improvements, or supplementing retirement income. However, equity release plans can be complex and can impact the amount of inheritance in your estate, making it essential to fully understand your options. 

That’s why our independent equity release specialists will discuss your circumstances in detail including any history of bad credit and the options available to you, including the implications of equity release. 

What is Bad Credit? 

‘Bad Credit’ typically refers to someone with a low credit score and a history of credit issues. Your credit can be affected negatively by missed payments, high credit utilisation and other factors such as bankruptcy, County Court Judgements (CCJs), and Individual Voluntary Agreements (IVAs). 

Whilst most lenders will view people with bad credit as a higher risk, there may still be options available to you including equity release.  

Understanding Credit Issues 

Credit issues, such as a poor credit score or any missed credit, loans or mortgage payments, can impact your ability to secure a traditional mortgage or loan. However, equity release lenders are more flexible because they mainly take into consideration your property, your age and your circumstances with regard to you borrowing money against your home, not your credit score. This means you do not pay a higher interest rate because of missed payments that you would with a conventional mortgage, though it is important to note some lenders may have a fixed rate for all applicants, but others may adjust based on perceived risk, including credit profile and property.  You will need to be upfront about any credit issues as transparency is required, and a credit check will be completed on application. 

Whilst your credit history will be assessed, it will not weigh as heavily as it would for a traditional mortgage or loan, allowing individuals with lower-than-average credit scores to potentially access equity release products. 

It’s essential to understand how credit issues may affect your equity release applications and to seek advice from a qualified equity release adviser. 

Equity Release with Bad Credit 

While some lenders are flexible, adverse credit may still limit your options or affect approval. In comparison to traditional loans or mortgages, equity release lenders prioritise property value and other eligibility factors rather than a poor credit history because lending is not based on the ability of the person to pay monthly payments. 

A poor credit rating doesn’t automatically disqualify you from equity release, but it may influence the lender’s decision or terms offered. For equity release, and it is possible to use equity release to pay off debts, such as credit card debt or personal loan arrears, and improve your credit record. 

It’s essential to seek advice from an equity release adviser to determine the best equity release product for your individual circumstances. 

Whilst in most circumstances you may still be eligible for equity release with a bad credit history, you’re not guaranteed to be approved for equity release. Some factors such as existing bankruptcy’s may make you ineligible so it’s important to speak to a qualified independent equity release adviser to discuss your options in detail. 

Things your adviser will need to discuss: 

• If you have any County Court Judgements (CCJ) 

• If you are in an Individual Voluntary Arrangement (IVA) or have had any in the past 

• If you are currently under bankruptcy or if you have been in the past 

• If you have had any missed payments or arrears in the past 

The effect of equity release on your Credit Score 

Whilst we’ve reviewed how poor credit can affect your eligibility for equity release, you’re likely curious to know if your equity release loan could contribute to a bad credit score. 

 Equity release will not directly affect your credit score negatively as there is no commitment to make monthly repayments, and unlike unsecured debts a lifetime mortgage is a loan secured on your home which will be sold at the end of the plan to pay off any loan taken against your property.  With a lifetime mortgage if you do miss any pre-agreed monthly payments, the interest from your equity release plan will simply revert to a roll-up plan where the interest will accrue until you or the last person on the plan, passes away or moves into long-term care.  

However, it is important to note there are some lifetime mortgages that allow monthly payments such as the interest-reward lifetime mortgage. This is where you commit to making monthly payments in exchange for a more beneficial interest rate. Fortunately, if your circumstances change or you no longer wish to make payments, you can stop, and the interest will accrue as it would with a standard lifetime mortgage, however you may lose the discounted mortgage rate, but you will not lose your home or have bad credit as a result of not continuing to pay your agreed monthly payments. Always check specific lender terms to understand the implications of stopping payments towards your lifetime mortgage.  

In some respects, equity release may have a positive impact on your credit score over time, if you are using the funds to clear any other debts. However, it’s essential to consider the potential impact of equity release on your estate and any inheritance you plan to leave your loved ones. 

Equity release products can provide a long-term solution for individuals with poor credit scores, but it’s crucial to understand the implications of equity release on your personal circumstances, including your eligibility for means tested benefits. 

Can you get equity release with an individual voluntary arrangement (IVA)? 

Whether or not you can pursue equity release while having an Individual Voluntary Arrangement (IVA) in place depends on several factors, including how much time is left on the IVA and the specific terms involved. Understanding how much equity you may need to release is crucial, as it can affect your eligibility and the overall process of qualifying for equity release options to settle debts. 

If the IVA has already been completed, you may be eligible for equity release, provided you meet the other standard eligibility criteria. However, these cases are typically assessed individually, as some IVAs may include clauses that require you to use any released equity to repay outstanding debts. 

Releasing equity could also impact the terms of your IVA, so it’s crucial to consult with a qualified equity release adviser. They can help you understand the implications and determine whether equity release is the best option for your circumstances, or if a more suitable alternative is available. 

Can I get equity release with a CCJ? 

Yes, you can get an equity release loan with a CCJ, however it is important to discuss your circumstances with a whole of market equity release adviser who will be able to take this into consideration and find a lender to fit your circumstances.     

 At Bower Home Finance, we have over 18 years of experience helping a range of customers, including those with bad credit, access equity release plans to suit their circumstances. Providing independent, whole of market advice, we search the whole of the market to help you find the right equity release plan. 

It is important to note some equity release lenders may require the CCJ to be settled prior to the release of funds, some may stipulate that any funds you release must be used to clear it immediately, and some may require you to settle the CCJ within a specified timeframe. 

The terms of your CCJ will also need to be taken into consideration as some lenders will be more hesitant if there is the potential for any more charges to be added to your home. In order to get a more personalised answer, we recommend speaking with a member of our team who will be able to assess your suitability for equity release and discuss the pros and cons before committing to anything. 

Can I take out equity release if I have gone through bankruptcy? 

Yes, you may still be eligible for equity release if you have previously been through bankruptcy in the past or if you have been discharged from a bankruptcy. 

Whilst a bankruptcy will sit in your credit file for six years, you should still be able to proceed with some types of equity release if you have been released from any debts and restrictions, and you meet all other eligibility criteria. It is also important to pay off any outstanding secured loan, such as a mortgage, with the funds from your equity release. 

It is important you discuss your circumstances with a qualified independent equity release adviser to learn more about your options and eligibility. 

Can I take out equity release with bad credit? 

Whilst a low credit score may complicate the application process, some equity release lenders are open to a history of bad credit to a certain degree. 

We will always recommend speaking to one of our qualified equity release advisers to discuss your circumstances in detail as they will be able to offer personalised recommendations on how to proceed. From discussing any existing mortgages and unsecured loans, to your overall financial situation, your adviser should discuss what they might find in your credit report and if there are any alternatives more suitable over equity release.    

Finding the right equity release scheme 

Finding the right equity release provider is an important step, as it can open up the options available to you in your personal circumstances. Most lenders assess various factors, such as credit score, debt-to-income ratio, and home equity, when determining eligibility for equity release. With a variety of options available, it’s important to choose a whole of market equity release adviser as they will need to take the time to research and compare all lenders, paying close attention to factors such as interest rates, fees, and repayment terms. 

At Bower Home Finance, as a whole of market advice company, we’re here to help you find the right plan and solution for your circumstances, whether you’re looking to clear existing debts, supplement your retirement income, or make some much-needed home improvements. 

Get started today with our free online equity release calculator: 

Use our equity release calculator to find out how much equity you could release from your home.