Can You Get Equity Release On a Shared Ownership Property?

Equity release is possible on a shared-ownership property, but only if you purchase the remaining share as a condition of the equity release loan.

This can make acceptance difficult and increase the application to completion time. However, if you are over 55, with enough equity and interested in owning your property outright, this could be a viable option for you.

In this insight, we are going to explain how this can be achieved.  

Key Takeaways:

• Shared-ownership properties have a more complex ownership structure than traditional properties, which makes it challenging for equity release providers to offer this service.
• Equity release is possible on a shared-ownership property only if you buy the remaining share as a condition of the equity release loan. To do so, you need to be over 55, raise enough equity to buy the remaining share of the property, and complete the purchase simultaneously as releasing the equity.
• You need to calculate the accurate value of the property, seek permission from the housing association/landlord, and research solicitors who are experienced in paying off remaining shares of the property with equity release.
• The maximum amount you can release on a shared-ownership property is 60% of the property's value.

In 2022, 19,386 new Shared Ownership properties were built to provide more affordable housing options in the UK. As many older shared-ownership homeowners approach retirement, they may wonder about equity release options. If you're over 55 and interested in owning your property outright, equity release may be a viable option for you. This can help raise money for retirement while 'staircasing' to buy the remaining share of your shared-ownership property.

Shared ownership is a housing scheme where you purchase a percentage, between 25% and 75%, of a property and pay rent on the remaining percentage. This allows homebuyers to live in properties that may have been unaffordable otherwise. They can secure a mortgage for their share with a smaller deposit and pay lower upfront costs. As time passes, they can pay back their mortgage, owning their share of the property outright. They can then choose to staircase, which means buying more of the property to increase their share until they own 100% of it. Shared ownership does not refer to owning a property jointly with someone else, such as a spouse.

Equity release is a scheme that allows you to free up cash tied up in your property. However, if you try to get equity release on a shared-ownership property, you will likely be turned down unless you commit to buying the remaining share of the property. This is because equity release is only an option if you own the entire property. If you don't own the entire property, you might be able to apply for a lifetime mortgage or home reversion plan on the condition that you purchase the rest of the property when the transaction is completed.

Why isn't equity release available for shared ownership properties?

Equity release isn't an option for shared ownership properties due to their complex ownership structure, which makes it difficult to assess the property's value and associated risks. Furthermore, shared-ownership properties have restrictions that pose challenges for equity release providers, such as requiring permission from the housing association or landlord before any alterations can be made

What are the conditions that allow you to use equity release on a shared-ownership property?

There are a few conditions that may allow you to use equity release on a shared-ownership property. They are as follows:

• You must be over 55.
• You must be able to raise enough equity to buy the remaining share of the property.
• You must complete on the purchase simultaneously as you release the equity.
• The property must be of the minimum value, which is usually £70,000.
• You must be in good health.
• The property must be of good condition.

In most cases, the conditions associated with shared ownership do not pose any issues for equity release approval, except for the requirement to purchase the remaining share. If you own just 25% of the property, it's unlikely that you'll have sufficient equity to buy the remaining 75% share. However, if you own 75% and need to purchase the remaining 25%, this may be more achievable.

Releasing equity to purchase the remaining share of your shared-ownership property

To release equity and purchase a shared-ownership property, there are several steps you should take to determine your eligibility.

Get your property valued

To know how much equity you can release, you must know how much the property is worth. This is critical to determine how much you'll need to pay off the outstanding share and the value of your share.

Seek permission from the housing association or landlord

Before proceeding, make sure you are allowed to buy the remaining share. Not all shared-ownership schemes permit you to own 100% of the property.

Research solicitors

Look for solicitors who specialise in paying off remaining shares of the property with equity release. Choose an experienced solicitor for your specific transaction.
Once you have this information, you can calculate if you have sufficient equity to release

How much equity can you release on a shared-ownership property?

With a Lifetime mortgage, the amount you can release is based on several factors including your age, your home's value, and your health. Usually, you can release between 20% and 60% of your property's value. 

Home reversion plans also offer between 20% and 60% of the property's market value depending on your age and health. The younger you are, the lower percentage of the property's value you can expect to receive.

The maximum amount you can release through both schemes is 60% of the full value of your property. However, you need to release enough equity to pay off the remaining share for it to be accepted as an equity release.

Let's say you own a 75% share of a shared-ownership property that's valued at £300,000. This means your share is worth £225,000, and the remaining 25% is owned by a housing association or landlord. You want to pay back the 25% share and release the maximum amount of equity possible, which is 60% of the property value.

Example

Assuming you're eligible for equity release and can release up to 60% of the property value, you could release £180,000 in equity. £75,000 of this would be used to purchase the remaining 25% share, and the remaining £105,000 would be paid to you as cash. 

Here's a breakdown of the numbers:

• Property value: £300,000
• Your current share: 75% or £225,000
• Equity release amount: £180,000 (60% of the property value)
• Funds needed to purchase remaining share: £75,000 (25% of the property value)
• Cash received for retirement: £105,000 (£180,000 equity release amount minus £75,000 to purchase the 25% share)
• Total cost to purchase remaining share: £75,000

Can you get equity release on a shared-ownership property if you also have a mortgage?

This transaction is complex with many factors to consider. For the equity release to be approved, it is essential that the released money is used to pay off the mortgage and purchase the remaining share. Meeting these conditions is necessary for the equity release to be approved.

Example:

Let's say you own a 75% share of a shared-ownership property that's valued at £300,000. This means your share is worth £225,000, and the remaining 25% is owned by a housing association or landlord. You want to pay back a mortgage of £85,000, purchase the remaining 25% share, and release the maximum amount of equity possible, which is 60% of the property value.

Assuming you're eligible for equity release and can release up to 60% of the property value, you could release £180,000 in equity. £75,000 of this would be used to purchase the remaining 25% share, £85,000 would be used to pay off the existing mortgage, and the remaining £20,000 would be paid to you as cash.

Here's a breakdown of the numbers:

• Property value: £300,000
• Your current share: 75% or £225,000
• Equity release amount: £180,000 (60% of the property value)
• Funds needed to purchase remaining share: £75,000 (25% of the property value)
• Funds needed to pay off existing mortgage: £85,000
• Cash received: £20,000 (£180,000 equity release amount minus £75,000 to purchase the 25% share minus £85,000 to pay off the mortgage)
• Total cost to purchase remaining share and pay off mortgage: £160,000 (£75,000 to purchase the 25% share plus £85,000 to pay off the mortgage)

How does equity release on a shared-ownership property work?

At the same time as completing on the loan you will need to purchase the remaining share of the property. In simple terms, when you release the equity, you immediately hand over the money to the housing association for the remaining share. Your solicitor will be able to take care of the logistics of this on completion day.

Why would equity release be declined on a shared ownership property?

There are a couple of reasons why your equity release application may be declined. Firstly, not all equity release lenders are willing to lend for the purpose of paying back a shared-ownership property, so it's crucial to do thorough research and seek advice. Secondly, you will need to be able to raise enough equity to afford to buy the shared-ownership remaining share, as it is a requirement for equity release to be approved. If your figures don't add up, your application may be declined.

Example of when the figures do not add up

Let's say you own a 25% share of a shared-ownership property that's valued at £200,000. This means your share is worth £50,000, and the remaining 75% is owned by a housing association or landlord. You want to release equity to purchase the remaining 75% share and also receive some cash for other purposes.

Assuming you're eligible for equity release and can release up to 60% of the property value, you could release £120,000 in equity. However, to purchase the remaining 75% share, you would need to pay £150,000, which is more than the amount of equity that can be released. This means you wouldn't have enough funds to complete the purchase of the remaining share, and the figures don't add up.

In this scenario, the decision would be a decline.

Equity Release Calculator

Sunny Avenue have put together an Equity Release Calculator which can be used to provide a guideline on how much you can borrow based on your age and property value.

Seeking the right advice on Equity release on a shared ownership property

Obtaining equity release on a shared-ownership property is a tricky transaction. It's important that you seek the right advice. It is a condition set by the equity release council that you obtain advice from a qualified adviser and solicitor when going through this process.

An adviser will help you to understand if the figures stack up and how much equity release you can get. 

If you are unsure where to start with getting advice, complete the Sunny Fact Find for Mortgage advice. The answers you provide help us the find the best-suited adviser for your needs. Your adviser then contacts you for a no obligation conversation on how they can help. You decide how to proceed.