Finding your way through the complexities of equity release with bad credit can be challenging, especially as financial pressures mount with age. 

According to recent data, 1 in 7 people aged 65 and over are using loans and credit cards to make ends meet, which often leads to a debt spiral.¹ 

This reliance on borrowed funds raises the question of how a poor credit history can impact the feasibility of obtaining a plan. 

This article aims to explore this relationship and provide insights on securing home equity for those burdened with bad credit.

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Can I Get Equity Release With Bad Credit in the UK?

Acquiring equity release in the UK with bad credit is a possibility.

Though your credit history may affect the type of equity release scheme available to you, many providers consider other factors too.

These include the value of your property, your age, and the amount of equity you wish to release.

Unique to the UK market, some equity release providers focus more on these factors than solely on credit history.

Thus, bad credit doesn't necessarily preclude you from releasing equity from your home.

It's recommended to seek advice from a specialist advisor to explore your options.

What Is Considered Bad Credit?

In the UK, a lower credit score with Experion is 720 and below, with TransUnion, the lower scale is below 565, and below 380 with Equifax.² 

Various elements can create hurdles when applying for certain financial products.

These include:

• Arrears: Falling behind on bill payments will drag your score down. 
• Court records: County Court Judgements (CCJ), bankruptcy and other legal actions against you for unpaid debts can also leave long-lasting scars on your credit file.³ 
• High credit utilisation: Consistently maxing out your cards can raise concerns among lenders, so try to keep balances low. 
• Electoral roll: Not being registered to vote makes it hard to confirm your home address, identity or any sense of stability.
• Joint accounts: Having accounts with someone who does not have a great credit record can also impact you.
• Account management: Your track record and whether you have a history of late payments are taken into consideration.
• Borrowing history: Having a sparse credit history or past credit errors can affect your credit rating.

Can You Get Equity Release With Bad Credit?

Yes, if you qualify, you can typically secure your home equity even with a poor credit history. 

Unlike traditional loans, equity release products may not heavily factor in your credit score during the approval process. 

This is because it is a secured loan against your property value.

It is important to consult with a financial advisor to understand the specific criteria and conditions.

How Does Bad Credit Affect Equity Release?

While a poor credit score may concern you, it often has minimal impact on an equity release application, as the main focus for lenders is typically the value of your home and the equity it possesses.

Equity Release With Debt

Having debt is not an automatic barrier. 

Often, you can use the funds from the unlocking equity to clear existing debts, particularly those secured against your home. 

However

Keep in mind that doing so will reduce the funds available to you from your home.

Equity Release With Credit Card Debt

Your credit card debt is generally not a factor in the application process because it is unsecured and not tied to your property.

You can choose to repay your credit card debt for your property value proceeds.

Equity Release While in Arrears

Although you can get equity release when you have arrears, you will likely have to use some of the funds to settle any secured debts, such as an outstanding mortgage.

Equity Release With a County Court Judgement

If you have an active CCJ, you will need to resolve it, and the timing for doing so depends on the lender's conditions.

Your provider may require you to settle the judgment either before disbursing the funds, through your solicitor at completion before transferring the remaining amount, or by you within 6 months of receiving the funds.

Read On: Equity Release Solicitors

Equity Release With an Individual Voluntary Arrangement (IVA)

You can unlock property value if you have an Individual Voluntary Arrangement (IVA) before or after the equity release is approved, depending on lender policies.⁴

An IVA is a way to avoid bankruptcy by making a deal with the people you owe money to, where you agree to pay back some of your debt over a set time.

Equity Release With a Charging Order

A charging order must be paid off, usually either from the equity release funds or before the funds are disbursed because your plan can be the only lien against your property.⁵

A charging order is a legal mechanism that can be triggered if you fail to comply with a CCJ. 

It secures the debt against your property, meaning the debt must be repaid when you sell or refinance your home. 

How Does Bankruptcy Affect an Equity Release Plan?

You must be discharged from bankruptcy to qualify for equity release.⁶

You are usually automatically discharged a year after declaring bankruptcy, but it stays on your credit record for at least another 6 years.

It is important to inform your provider about the bankruptcy regardless of when it took place.

Can I Get Equity Release Without a Credit Check?

It is doubtful that you will find a plan that does not require a credit check, as most lenders use it as part of their assessment process. 

However

Your property’s value generally outweighs your credit score in whether or not you qualify. 

Steps to Getting Equity Release With a Bad Credit Rating

Navigating the process of obtaining equity release with a bad credit rating is more manageable with these straightforward steps.

1. Check Your Credit Report

Knowing your credit score will give you an overview of your financial standing, not only for equity release but for any other major transactions.

Managing your finances well - not going into arrears on loans, paying your bills on time and not having any judgements for debt against you - all contribute towards a good credit record.

2. Speak to an Equity Release Broker or Advisor

Some brokers and advisors specialise in assisting potential borrowers who have bad credit.

They will help you identify providers that are more likely to approve your application, despite your credit issues.

Take note

It is important to be brutally honest with them about your financial standing.

3. Find the Right Provider for You

Your broker or advisor is there to find the provider best suited to your needs and financial situation.

Common Questions

Conclusion

Having a bad credit history is not necessarily a barrier to obtaining equity release. 

Many lenders are more interested in the value of your property rather than your credit rating.

However, certain types of debts and legal financial obligations may need to be settled before or during the process. 

The important takeaway is that equity release with bad credit is possible, but being upfront and honest about your financial situation with your advisor will help you find the most suitable plan for you.