Equity release for tenants in common

Navigating equity release for tenants in common: a guide

Equity release is a popular tool for over-55s looking to boost their finances in or approaching retirement. The application process can be straightforward for many people. However, when homeowners own their property as tenants in common, the process of equity release can sometimes be more complex.

This article aims to provide a good understanding of what tenants in common are, their potential equity release options, legal considerations and the importance of seeking professional advice. Read on to discover the following:

• What is equity release?
• What are ‘tenants in common’?
• Equity release for tenants in common.
• Risks and benefits of equity release for tenants in common.
• Legal considerations for equity release and tenants in common.

We hope this article will help you understand equity release and tenants in common. Our selected equity release advisers are also available to discuss your circumstances and offer further information and advice.

Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment with an adviser for you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

What is equity release?

Equity release is a financial product that allows homeowners aged 55 or over to unlock some of their home’s value as tax-free cash without having to sell the property or move out. 

It can be a particularly useful option for those seeking to top up a retirement income, pay off an outstanding mortgage or meet other financial needs.

The most popular type of equity release is a lifetime mortgage. This is a form of secured loan that is paid back through the sale of your house when you pass away or move into long-term care. There may be other ways to release equity if you are under 55.

What are ‘tenants in common’?

The term ‘tenants in common’ refers to a form of property ownership in England or Wales when multiple individuals hold separate, distinct shares of the same property. These shares can be of equal or unequal sizes and can be sold or transferred independently of the other tenants. 

If you co-own your property as tenants in common, you may still be able to arrange equity release on your home. However, when the first homeowner passes away or moves into long-term care, your lender may restrict future changes to the plan. This might include, for example, the ability to unlock further funds.

Differences between ‘tenants in common’ and ‘joint tenants’

There are several key differences between tenants in common and joint tenants:

• Ownership shares: Joint tenants have equal, undivided ownership shares in the property. Tenants in common have the flexibility to determine the percentage of ownership each individual holds. 
• Survivorship rights: In joint tenancy, when one owner passes away, their share automatically transfers to the surviving tenant(s). This is called the ‘right of survivorship’. Tenants in common, however, can leave their share to another beneficiary in their will.
• Transfer of shares: Tenants in common can sell or transfer their shares independently of the other tenants. In contrast, joint tenants cannot sell or transfer their share without the consent of the other joint tenants.

Benefits and risks of tenants in common

There are some benefits of being tenants in common, these include:

• Flexibility: Tenants in common can own different shares of a property. This can be useful if one owner pays more towards the property than the other. In this instance, the ownership share could be directly proportional to how much each owner put in towards the purchase.
• Inheritance: You can leave your share of the property to your chosen beneficiary or beneficiaries. This allows for more control over the distribution of your assets when you pass away.
• Independent control: Each tenant in common can sell or transfer their share without the consent of the other tenants.
• An estate planning tool: Co-owning your home as tenants in common may help you to put the property into a trust. Some financial advisers suggest doing this to protect your assets in the event that long-term care is required in the future. You should seek legal advice if you are considering this.

However, there are also some risks to consider if you are thinking about becoming tenants in common. These can include:

• Disagreements: Conflicts may arise among tenants regarding property management, use, putting it up for sale or borrowing on the property such as equity release decisions.
• Complications in equity release: The equity release process can be more complex due to the need to consider each tenant’s share, eligibility, and legal rights.

Equity release for tenants in common

There are two main types of equity release available for tenants in common:

Lifetime mortgage

A lifetime mortgage allows homeowners to borrow against the value of your property. The loan, plus accrued interest, is typically repaid when the last surviving homeowner passes away or moves into long-term care. 

For tenants in common, the mortgage provider will consider the combined value of each tenant’s share in the property.

Home reversion

Home reversion plans allow you to sell a percentage of your property to a reversion company in exchange for a cash lump sum or regular income. The homeowner retains the right to live in the property rent-free until they pass away or move into long-term care. 

With tenants in common, the reversion company will take into account the shares of each tenant in the property when determining the amount they are willing to offer.

Tenants in common: equity release criteria

If you are tenants in common, equity release criteria you will need to pass typically include:

• Minimum age: The youngest homeowner must be at least 55 years old to qualify for equity release. If you are looking to arrange a home reversion plan then the minimum age rises to 60.
• Minimum property value: The property must be worth at least £70,000.
• Consent of all tenants: Equity release can either be arranged in single or joint names. There can be no more than two names on the title deeds of your property to arrange equity release. Both tenants in common must consent to the equity release, as a plan will affect the value of each individual’s share in the property.

Risks and benefits of equity release for tenants in common

There are some benefits of equity release which might make this product appealing for tenants in common. These include:

• Access to funds: Equity release provides a means of accessing additional tax-free funds without having to sell the property or move out. The money can be spent however you wish, once any outstanding mortgage on the property is paid off first.
• Retain property rights: With any plan from a member of the Equity Release Council, you have the right to stay in your home for the rest of your life or until you move into long-term care. If you choose a lifetime mortgage, you will also continue to own 100% of your home. 
• Interest payment options: Lifetime mortgages offer various options when it comes to handling the interest. Many people leave the interest to roll-up so they don’t have to make any monthly repayments on their loan. Alternatively, you can arrange an interest-only equity release plan where you pay all of the interest due each month, so the loan never grows in size. Alternatively, you can make payments of some of the interest to reduce the amount that accrues. 

On the other hand, risks of arranging equity release for tenants in common include:

• Reduction of inheritance: Equity release reduces the value of the property, which will result in a smaller inheritance for your beneficiaries. 
• Effect of compound interest: Due to the way in which the interest is typically left to roll-up each month, an equity release loan can increase quickly over time.
• Entitlement to state benefits: The tax-free money you receive from equity release may affect your entitlement to some means-tested benefits.
• Potential disagreements: Disagreements among tenants regarding the equity release process or the division of funds can cause complications and strain relationships.
• Complications when one person dies: If one co-owner passes away after arranging an equity release plan, complications can arise depending on who is to benefit from their will and receive their share of the property. We’ll discuss this more further on.

You can read more about the pros and cons of equity release by clicking here. 

Legal considerations for equity release and tenants in common

If you own your home as tenants in common, there is much that you will need to think about and discuss with your financial adviser. Some of these decisions will be of a legal matter, so you may also wish to consult with a solicitor before committing to anything.

Single vs. joint plan applications for tenants in common

Tenants in common must make their equity release application jointly in both names. One homeowner cannot choose to arrange a single equity release plan in just their name for their share of the property. 

What happens to equity release when one tenant in common dies?

If you own a property as tenants in common with equity release then you may be wondering how your plan will be affected should one of you pass away. The answer to this very much depends on your wills.

The good news is that if a tenant in common passes away and leaves their share of the property to the other co-owner, there will be very little impact on your equity release plan. 

If, however, the will states that their share of the property will be inherited by someone different, there are some potential implications regarding your plan. Depending on your chosen lender, they might:

• Prevent access to any drawdown facility that you may have in place.
• Stop any further borrowing on your plan.

If there is no will then their share of the property will be divided in line with strict rules called the laws of intestacy. 

If you are tenants in common then it is very important you seek specialist equity release and speak to your solicitor before proceeding with an equity release plan to protect your interests.

Seeking specialist advice for equity release with tenants in common

Seeking professional advice is crucial to navigate the complexities of equity release and avoid potential pitfalls. Qualified specialists –  like our selected advisers – can help tenants in common understand the process, assess the risks and benefits, and make informed decisions that align with their financial goals.

When selecting a specialist in equity release, tenants in common should:

• Look for an adviser with experience in dealing with tenants in common, as they will be better equipped to address the unique complexities involved.
• Check their adviser is able to compare interest rates, fees and terms offered by different leading providers to find the best deal.
• Ensure their adviser only recommends plans approved by the Equity Release Council (ERC). The ERC sets high standards for all its members who must sign up to standards and rules that protect consumers from the ‘equity release horror stories’ of 30+ years ago. 

Speak to a specialist

Our selected equity release specialists are ready and waiting to help you explore your equity options and find the best plan for your needs. To arrange an appointment, please call 0808 178 3055, or request a call back at a time that suits you.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn