Lots of equity but a bad credit record? It’s a common problem. Lots of people reach retirement and want to consider releasing some of the equity in their home to boost their pension income but are worried their credit history could hold them back.
Luckily equity release can still be a possibility, though you may have a few more hoops to jump through. This guide will tell you everything you need to know about getting equity release with bad credit, and how to make sure you stand the best chance of success.
In this article:
Can you get equity release with bad credit?
Yes, you can. In fact, surprisingly, you may even have a better chance of qualifying for an equity release scheme, if you have a poor credit score, than you would for a traditional mortgage.
With equity release there’s no requirement to make monthly repayments during your lifetime – unless you choose to and your plan allows it – which means you won’t face an affordability assessment and your credit score won’t be as closely scrutinised as it would be for other forms of finance.
Instead, the loan is wholly secured on your home and will be repaid on your death or sale of the property, with the future saleability of said property therefore the most important factor.
This means you should still be able to get equity release with bad credit, though it may depend on the severity of your financial situation. For example, if you’ve got a large amount of existing debt, CCJs or have been declared bankrupt, you may find it more difficult to be approved.
Speaking to a specialist broker is always recommended, as they’ll be able to work with you and decide whether or not your past credit history will have an impact on your application.
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Which credit issues will providers accept?
If you’ve simply got a poor credit score because of low-level misdemeanours – perhaps you missed a payment here and there – you’ll normally still have a good chance of being accepted for equity release.
Just bear in mind that this can depend on the terms and conditions of the individual lender, with some expecting a completely clean credit history. On the other hand, others will accept more adverse forms of credit, so you’re unlikely to be locked out completely.
Can you get equity release if you have outstanding debts?
If they’re not secured on your property, then yes, you can. This includes things like unsecured personal loans, overdrafts, car finance agreements and credit cards. Provided you’re managing the debts effectively they should have no bearing on your equity release application, though if you’re in arrears, some lenders may expect you to use a portion of the money released to clear the debt.
However, it can be more difficult to be approved if any of your current debts are attached to your home. Your new lifetime mortgage agreement must be the only debt secured on your property, so if you’ve still got a current mortgage balance or secured loan, you may not be eligible for equity release.
That said, some lenders will allow you to use a lump sum from your equity release plan to clear any existing first or second charges, though again, this will depend on the lender.
Can you get equity release if you have a CCJ?
It’s unlikely. If you have a County Court Judgment (CCJ) you’ll be classed as higher risk and may find it more difficult to be approved, because there’s the chance the company could place a charging order on your property if you don’t stick to the agreement, or may force you to sell your home in order to repay it.
Because another party has an interest in your property, you’ll normally be required to be clear of the CCJ and settle the debt before you apply for a lifetime mortgage. In some cases, you may be able to use the equity you release to clear it, though this will often require the involvement of a solicitor and may not be possible with all lenders.
What if you’ve been declared bankrupt?
If you’ve been declared bankrupt then you won’t qualify for equity release. You’ll need to be discharged from bankruptcy before a lender will consider it.
The bankruptcy will stay on your file even after you’ve been discharged, but provided you’ve been fully released from any debts this shouldn’t impact your eligibility. However, you’ll still be required to tell your broker and lender of any previous bankruptcies, regardless of when they took place.
How to get equity release with a bad credit rating
Because the application process could be a bit trickier when bad credit is involved, the smart move to make is to first speak with a specialist broker who already has experience successfully arranging equity release schemes for people under these circumstances, rather than risk being declined by going direct to a lender.
Using our free broker-matching service you can speak straight away to the right mortgage broker by simply making an enquiry online. They’ll be able to help with:
- Downloading and checking your credit reports – to establish exactly what the main issues are and how they’ve affected your overall record
- Finding the right providers who have a track record assisting people still get an equity release loan with bad credit
- Repairing your credit record and gathering all the necessary documentary evidence needed for your application
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Can you remortgage to release equity with bad credit?
The short answer is yes, though you may have an even tougher time finding a suitable deal – or at least, getting a competitive rate – if you’ve got a poor credit score.
This is because remortgages are a more traditional form of finance and lenders need to be confident that you’re not going to default, but a poor credit score may indicate that this is more likely. As such you’ll be deemed a higher credit risk and could face less favourable terms, and may be declined altogether, particularly if you’re approaching a high street lender.
Your age could come into it as well. Equity release is specifically designed for homeowners aged over 55 for whom traditional mortgage options are becoming more limited, largely thanks to maximum age limits and impending retirement. Remortgaging could therefore be more difficult to arrange for this reason, too.
Other alternatives to consider
Remortgaging to release equity may not be impossible, though you may find a retirement interest-only mortgage a more suitable alternative.
Retirement interest-only mortgages are specifically designed for older homeowners who want to extend their mortgage but who, because of their age, are locked out of traditional deals. They’re able to remortgage to an interest-only deal and may be able to release equity in the process, and will be required to repay the interest each month.
The exit strategy is typically the same as with equity release – you’ll be expected to repay the loan on the eventual sale of the property, and won’t need to make any capital repayments during the term of the mortgage. This can offer a viable alternative to equity release, though your credit score can still come into it, and your options may be more limited as a result. Speak to a broker if you’re considering going down this route.
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Does equity release affect your credit score?
No. You don’t have to make any repayments so it won’t have any bearing on your credit report, though you’ll still be credit checked, which will always result in a temporary dip to your score. However, this won’t last long and shouldn’t impact any future credit applications you make.
Can I get equity release with no credit check?
No. Equity release lenders will always need to perform a credit check, it’s just that your score won’t have such a significant bearing on your application.
Get matched with a bad credit equity release advisor
The key to being accepted for equity release when you have bad credit is to find a specialist broker to help with your application. That’s where we come in.
Our unique broker matching service will put you in touch with the broker who’s perfect for your needs. Just tell us a few details and we’ll scour our network of advisors to find one to suit – with plenty of brokers who specialise in bad credit equity release, you can be confident that you’ll soon have the necessary expertise on your side.
Get started today – make an enquiry or call us on 0808 189 2301 for a free, no obligation chat.
Yes. Pension credit is means-tested and so your eligibility will depend on your savings and income. If you release equity, the amount will count towards your savings and will be included in any income calculation, potentially impacting the amount of pension credit you’ll be entitled to.
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