Calculating Equity for an Equity Release Mortgage Application

A detailed look at the equity calculations you'll need to apply for a lifetime mortgage or equity release loan.

Calculating Equity for an Equity Release Mortgage Application

Low state pensions and a lack of cash savings can make it hard for retirees to cover their outgoings or enjoy a relaxed retirement.

Equity release is one potential solution, offering a way to borrow financing leveraged against the equity in your home without any requirement to make repayments.

The pitfall is that the lender will sell the property when you go into care or pass away, but they will still remit any balance from the proceeds to your beneficiaries.

This guide looks at how lenders calculate the maximum they will lend and what upper limits apply to an equity release mortgage application.

What is the Maximum Equity Release Value  I Can Apply for?

The maximum you can borrow through equity release depends on your age, health, property type, property value, and whether you have an outstanding mortgage or own your home outright.

A lender will normally lend up to 55% as a maximum Loan to Value as a rule of thumb.

Equity Release: How Does it Work Based on My Age and Health?

You must be 55 or above to apply for an equity release mortgage. If you are a joint owner, the youngest must reach that age limit or transfer their equity to the older applicant.

Generally, you can borrow more as your age increases - the reality is that the lender's life expectancy calculations will make it more likely that they will sell the property sooner.

Hence, it's a reduced risk to them.

Health and lifestyle are critical metrics in the life expectancy assessment.

If you have particular health conditions, you may be offered a higher percentage of your equity.

There are over 100 applicable conditions and more than we can list here, but the Revolution Broker team can help if you'd like a confidential chat.

How Do Equity Release Advisers Calculate What I Can Borrow?

Regulated and registered equity release lenders adhere to the guidelines set by the Equity Release Council.

Those rules limit the maximum proportion of capital you can apply for through an equity release product, and lenders may also stipulate a minimum loan value they will consider.

Part of this is the guarantee of no negative equity, which means that no matter what you borrow and how long you live in the property, the lender cannot impose a debt collection order on your beneficiaries to collect more on the loan than the property is worth.

Lenders tend to go for a maximum 50% cap to have some risk limitation, so there isn't much likelihood that rolled up interest will create a higher loan balance than they can recoup.

Most providers will offer between 20% and 50% as an equity release loan proportionate to your property value.

The Best Equity Release Loan to Value Based on Property Price

Although equity release LTVs will depend somewhat on the lender, we have compiled the below table to give you a rough idea about how much you might be able to borrow based on your age and the value of your home.

Note that this is purely an illustration, and other factors such as your health, the nature of the property and the construction materials used will also impact the maximum LTV assessment process.

Applicant Age

£150,000 property

£200,000 property

£250,000 property

£300,000 property

£350,000 property

£400,000 property

55

£31,500

£42,000

£52,500

£63,000

£73,500

£84,000

60

£37,500

£50,000

£62,500

£75,000

£87,500

£100,000

65

£46,500

£62,000

£77,500

£93,000

£108,500

£124,000

70

£54,000

£72,000

£90,000

£108,000

£126,000

£144,000

75

£61,500

£82,000

£102,500

£123,000

£143,500

£164,000

80

£63,000

£84,000

£105,000

£126,000

£147,000

£168,000

Equity Release Support From the Independent Equity Release Advisers

Please contact the whole-of-market equity release team at Revolution Finance Brokers for more information about any aspects we have discussed here.

It is essential to receive independent guidance before taking on a  long-term financial commitment, and multiple variables affect the most appropriate lender and product we might recommend.

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FAQs

How does our broker-matching service work?

The most common equity release product is a lifetime mortgage, which tends to come with a minimum loan value of £10,000 at most providers.

You might find that a lender won't go beneath £15,000, which may impact your decision about who to apply to and for how much.

Equity release calculations can be fiddly because they aren't solely about the value of your property.

Lenders address your health and life expectancy to arrive at an assessment that dictates the maximum LTV they will lend.

If you need help selecting a lender who will offer the loan value you require, please contact the Revolution Broker team, and we'll walk you through it to arrive at a rough indication.

Equity release lenders will normally assess applicants with a property worth at least £70,000, but they may also have a minimum loan balance they will consider.

That minimum isn't the same as the Loan to Value but indicates the smallest loan the lender will offer to make it worth the administrative work.

Some lenders fix their smallest equity release value at £10,000 or £15,000, but others won't lend less than £100,000 if they specialise in higher-value properties.

Unlike other loans or mortgage products, you wouldn't normally expect to pay anything back against an equity release loan.

Regardless of how much you have borrowed or how long you live, you don't need to make any deposits.

The exception is where you have opted for an interest-only equity release product where you pay the interest each month but none of the capital balance.

This option means that you have greater control over the value you leave to your heirs but the application process requires an affordability assessment.

Usually, the lender will sell the residence when you die or go into long-term care and use the sale financing to pay back the loan.

Provided you apply to a reputable equity release lender and ensure they are appropriately authorised by the Financial Conduct Authority and registered with the Equity Release Council, this type of product is very safe.

That doesn't mean there aren't drawbacks to equity release, primarily that the lender will sell the property when you pass away or move into a care home.

However, you have protections such as a negative equity guarantee.

Even if your home falls in value or you live a very long time, the lender cannot recoup more from your property sale than it is worth.

Therefore, your beneficiaries will never be in a position where a lender is chasing interest debt because they didn't clear the full loan balance with the sale proceeds.

The lender will need to assess the value of your property before they can make an equity release offer - the open market valuation is a key figure.

A lot depends on the type of property you live in and the materials it is built from.

You might find it more difficult to secure equity release approval if you live in a property that is considered non-standard. That might be because it is built from less common materials or is a listed property.

Usually, you can borrow up to 50% or sometimes 55% of your property value, but if you are younger or the property is non-standard, your maximum LTV may be lower.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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