Can I get Equity Release on a leasehold property?

Equity Release write on sticky note and house made from paper isolated on Office Desk. Retirement co

Ask the expert at Smith & Pinching about Equity Release on a leasehold property in Norfolk - Credit: Getty Images/iStockphoto

My mother is thinking of buying a property on a development of retirement bungalows which should be completed in the autumn. She would be using the proceeds from the sale of her current house but might need to take out Equity Release on it in a few years to support her income. We’ve discussed this at length but are particularly concerned about possible increases in the cost of the property’s ground rent, as it will be sold on a leasehold basis. I believe that there are changes planned for leasehold purchases in the pipeline: will the changes help stabilise ground rents and will she be able to get Equity Release on a leasehold property?

Diane Fish, mortgage and equity release adviser with Smith & Pinching

Diane Fish, mortgage and equity release adviser with Smith & Pinching - Credit: Smith & Pinching

Diane Fish of Smith & Pinching responds:

Yes, it is perfectly possible to enter into an Equity Release arrangement on a leasehold property, even prior to the changes that are being planned. In fact, she could potentially set up a lifetime mortgage drawdown arrangement right from the outset, if that proved suitable, to allow her to draw additional funds as and when needed.

The government is indeed planning to make significant changes to leasehold rules, which should help to ensure that those who own leasehold properties are not faced with big increases in ground rents, or disproportionate costs when they buy or sell the property or extend the lease.

The plan is for the government to set up an online calculator that will work out the cost of extending an existing lease or buying the freehold of the property. Leases will be allowed to be extended to 990 years with ground rents set at zero. The intention is that the new legislation to restrict ground rents to zero will be agreed early this year, so hopefully it will be in place when your mother makes her purchase. The devil is in the detail, so you should seek independent legal advice in respect to these leasehold changes.

However, you should bear in mind that a retirement complex may levy additional charges to cover any services they provide which would be on top of any ground rent, so please ensure you understand these before your mother agrees to the purchase.

Taking out a Lifetime Mortgage/Equity Release arrangement will mean that the value of the estate left to the family upon death will be reduced. It may also affect entitlements to any means-tested benefits both now and in the future. Equity Release can be more expensive when compared to a normal residential mortgage. In addition, your mother will still be responsible for maintaining the property. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

There will be a fee for the Equity Release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £700. Any opinions expressed in this article do not constitute advice.

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