Can you get equity release on freehold flats?

Do freehold flats qualify for equity release?

There are ways to get equity release on freehold flats – but only if you also own the leasehold. In this article, we look at why freehold flats don’t automatically qualify for equity release, and how you may be able to find a solution.

Most flats in England, Wales and Northern Ireland are owned on a leasehold basis and will qualify for equity release if the lease is long enough. But freehold flats are different, and so it’s worth looking at the subject in some detail.

With that in mind, in our article we cover the following:

• What is equity release?
• Is your flat freehold or leasehold?
• Can you take out an equity release plan on a freehold flat?
• Can I become the leaseholder on my freehold flat?
• What about equity release on freehold flats where you also own the leasehold?
• What if I own the leasehold and a share of the freehold?
• Why is the situation different in Scotland?
• Do all equity release providers take the same approach to freehold flats?

After you have read our guide to equity release on freehold flats, you’re welcome to call us on 0808 178 3055, or request a call back and we’ll be happy to help further. Our selected advisers specialise in equity release and can advise on your property’s eligibility for a lifetime mortgage or home reversion plan.

What is equity release?

If you are aged 55+ and own your own home, even if there is some outstanding mortgage, you may be able to free up some tax-free cash with an equity release plan. Equity release lets you do this without having to sell or move home. (There are other ways to release equity if you are under 55.)

Equity release may appeal to you as you won’t have to make mandatory monthly repayments. That’s because the loan itself and any accrued interest are typically repaid through the sale of your property when you pass away or move into long-term care. 

Equity release today is a well-regulated industry and the Equity Release Council’s standards are there to protect you. Thankfully, this means that the ‘equity release horror stories’ of the 1980s are now thankfully in the past.  

Although providers tend not to offer equity release on freehold flats, it may be possible to gain ownership of the leasehold so that you can take out equity release. We’ll discuss this below, after first clarifying the differences between freehold and leasehold.

Is your flat freehold or leasehold?

If you own a flat and are considering equity release, the providers you deal with will need to know if your flat is freehold or leasehold:

Most flats tend to be leasehold, where you buy the flat but not the land it sits on. The land is owned by the freeholder, who sells you the flat itself for a set period of time but retains ownership of the land. 

You pay the freeholder ground rent, as well as a service charge because they have responsibility for maintaining the building’s roof and foundations, as well as shared areas such as hallways and gardens. 

Much less common are freehold flats, where you own the flat outright, so there is no separate freeholder to pay ground rent or a service charge to. A potential disadvantage is that you are reliant on your neighbours to share responsibility for maintaining common parts and areas of the building.

Can you take out an equity release plan on a freehold flat?

Equity release providers are typically reluctant or unable to offer plans for owners of freehold flats. The reason is that they usually get their money back through the sale of your property, and there is uncertainty about the future value and saleability of a freehold flat.

As an example, what happens if the roof on a block of freehold flats collapses? Unlike with leasehold properties, there might not be any clear legal obligation for anyone to arrange and cover the costs of repairs. This could devalue every flat in the building, or even make them unsaleable.

Having a clear and legal agreement with your neighbours for repairs and maintenance may not resolve the issue. The equity release provider will be concerned that if one of them sells their flat the new owner won’t necessarily enter into the same agreement.

Can I become the leaseholder on my freehold flat?

It might be possible to become a leaseholder on your freehold flat in order to qualify for equity release. For example, you and your neighbours may be able to set up a management company responsible for maintaining shared parts and areas of the building.

Such an arrangement may make it possible to then take out an equity release plan. This will need agreement from all of the freeholders in the building, be it a block of flats, converted house etc. You would need a solicitor to advise on whether this is possible, and if so to make the arrangements.

Please contact us if this is of interest to you. We can arrange for initial information on this subject from one of our selected advisers. They will also be able to put you in touch with specialist equity release solicitors for further advice and assistance.

What about equity release on freehold flats where you also own the leasehold?

There are some cases where someone with a freehold flat also already owns the leasehold. In these cases, you may be able to go ahead with equity release, subject to meeting other criteria.

What if I own the leasehold and a share of the freehold?

There is a scenario where you may not own a freehold flat outright, but instead own the leasehold and a share of the freehold. In a case like this, you may be able to get equity release.

Why is the situation different in Scotland?

The information above relates to property law in England, Wales and Northern Ireland. The situation is different in Scotland, where in most cases you own 100% of the property and the land it is built on. 

When you buy a freehold flat in Scotland you will typically pay a monthly maintenance fee known as a factors fee. This covers the cost of insurance, maintenance and repairs of common areas. 

For this reason, some providers offer equity release on freehold (sometime known as ‘feuhold’) flats in Scotland. Your property will however have to meet other lending criteria, and some freehold flats in Scotland may therefore not be acceptable.

Do all equity release providers take the same approach to freehold flats?

Each provider will have their own property lending criteria. Here is a quick summary of the criteria from some of the leading providers:

Please note: 

Information about providers’ lending criteria correct at time of publication. Providers will have additional relevant lending criteria, e.g. some providers will not accept some basement flats or some flats above commercial premises. Please contact us to talk to one of our selected advisers about your particular circumstances and eligibility for equity release.

Speak to an adviser for more information and advice

We hope this article has answered some of your questions about equity release on freehold flats. For more information or advice, why not talk to one of our selected advisers? They are equity specialists who can discuss your circumstances and offer further help.

Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment for you. 

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn