Equity release on a shared ownership property
Getting an equityThe difference between the value of the property and the amo... release on a jointly owned property is more complicated than getting one on your own home, but it’s not impossible. Here in this article on shared ownershipA scheme where a borrower purchases a share of a property an... equity released, we will explore all the possibilities and answer most asked questions such as Can I get equity release on a jointly owned property, what are the differences between a joint tenant and tenants in common etc.
Can I get equity release on a property that is jointly owned?
Equity release is an increasingly popular way of unlocking value in the home you own to fund a whole variety of financial needs – for building an extension or renovating your home, for example, to paying off other outstanding debts, splashing out on a new car or indulging in an around-the-world cruise.
The opportunities are many but what if you jointly own your home with someone else – is equity release still a possibility?
Can you get equity release if a property is in joint ownership?
The good news is that equity release on jointly owned property is possible.
Joint ownership of the property – and, specifically, whether you own it as joint tenants or tenants in common – will have some bearing on how the equity release arrangements are followed after the death of the first of the co-owners.
Joint tenancy vs tenants in common – what is the difference?
We are probably all familiar with the concept of sharing our home ownership with a spouse or partner. That is perhaps the most common type of co-ownership. The Consumers’ Association’s Which? magazine in August 2022 reminds us that it is actually possible for as many as four – related or unrelated – individuals to share the ownership of a property.
When the purchase is made, the co-owners must decide whether ownership is shared as a joint tenancy or tenants in common:
- if you are joint tenants, all the co-owners each have 100% ownership of the property – in the eyes of the law, all are acting together as a sole owner;
- those equal shares in the ownership of the property are held even if one of you paid a bigger share of the initial purchase deposit or if you are paying more towards the monthly mortgage repayments – you all have equal shares;
- another vitally important feature of the joint tenancy is its “rule of survivorship” – if one of the co-owners dies, their stake in the ownership passes automatically to the surviving owner or owners, and the deceased cannot have decided to leave their share in the property in any other legacy;
Tenants in common
- if you are tenants in common, up to four co-owners may own different, unequal shares in the property – if that is their wish;
- depending on the contribution made by the respective co-owners, for example, shares might be allocated in equal parts or percentages that reflect the initial contribution, the share each one will pay of the monthly mortgage, or their contribution to household bills and upkeep;
- when the property is sold, the proceeds can then be split between the former owners according to their recognised shares in the property – one of the reasons why a tenancy in common might be the preferred vehicle if it is a group of friends or more distant family members who co-own the property;
- as an article in House Beautiful also explains, tenants in common are not bound by the “rule of survivorship”. Each co-owner is free to pass on their share in the property to a designated beneficiary (or it is determined according to intestacy), and the other co-owners do not automatically inherit that share.
Can I get equity release if I have a joint tenancy?
Co-owners of a joint tenancy can enter an equity release agreement – in which a lifetime mortgage, for instance, runs very much along the line of a regular mortgage and all the co-owners enjoy 100% ownership of the property.
In such an equity release joint ownership agreement, the plan will run until the last joint tenant dies or moves into long-term care.
You should note that one co-owner is unable to take equity release on their share only. In this case, unless the equity release application is made in both names, it would be required that one of the co-owners has their name removed from the title deedsLegal documents that prove ownership of a property.. The remaining owner could then make a sole application.
Can I get equity release if I co-own a property as a tenant in common?
If ownership is shared as tenants in common, equity release is still possible – albeit slightly more complicated when one or more of the co-owners dies.
Any application for equity release must be made in the name of all the tenants in common, whatever their share in the ownership of the property. This is because no co-owner can arrange an equity release on their particular share on its own.
Because tenants in common reserve the right to pass on their share in the property to designated beneficiaries, the equity release lender might impose restrictions on the way, any changes are made to the agreement, including future requests to increase the borrowing under the plan.
Can I get equity release if one joint owner is under 55?
Equity release agreements are reserved for those over the age of 55. If one of the co-owners is over that age but the other is under 55, the older of the two can apply for an equity release in their own name only.
At the time of making any such application for equity release, the name of the younger co-owner – under the age of 55 – would need to be removed from the property’s title deeds. In other words, the younger of the two would relinquish their share of ownership in the property.
How much equity can joint applicants release?
The sum you receive from any equity release agreement naturally depends on several factors – not least, of course, the amount of equity you own in the property and the proportion of it you want to release.
Other key factors include the value of the property and your age. Typically, the older you are, the more you can borrow, simply because it is likely to be sooner rather than later that you die or move into long-term care, and the lender will then recover the capital that has been loaned and the interest that has accrued.
Generally, most lenders will consider a maximum loan of 60% of your home’s current market value.
Equity release on your home is a decision not to be taken lightly – and even less so if it is in shared ownership, either by joint tenants or tenants in common.
Before arriving at your decision, you might want to consult experts like us here at NeedingAdvice.co.uk, where you can draw on our extensive experience in all matters relating to equity release for a jointly owned property.
FAQs – Shared Ownership Equity Release
What is Shared Ownership?
Shared ownership is when you buy a percentage of a property with another party owning the remaining percentage of the property. Read more about shared ownership in the previous article.
How do I calculate my home equity?
If you have shared ownership of a property, your home equity is calculated by working out the value of your percentage of the property and then subtracting any debts attached to the property in your name.
What can I do to improve my credit score?
If you are having trouble with bad credit, you can always start improving your credit score by paying off your debt. You can also make sure that you pay your bills on time as this will help you build up a good history of payments.
You can get your latest credit report here.
Are there any downsides to shared ownership?
There are some downsides to shared ownership. For example, if you decide to sell your share of the property, you could find yourself selling your share at a lower price. It is always better to contact a mortgage broker before starting any application.
What is the difference between a home equity release plan and an Equity Release Plan?
Equity release can only be used on properties you habitually live at, so you will not be able to use an equity release plan on a property that is not your main residence.