Can You Get Equity Release on a Freehold Flat?

Buying a freehold property simply means that you will be buying both the land that the house is on, as well as the property that you are buying.

When purchasing a flat, you will most likely have a lease in place too, which will cover any shared spaces in the building, including any roof space that you might be able to use, the lifts, the hallway and any garden space that you might have access to [1].

However, a freehold flat is a flat which does not have a leasehold in place. It is important to understand that whilst they still exist, it is quite rare to purchase a freehold flat, as they bring complications when it comes to who is responsible for these shared spaces.

When you own a freehold flat in a building where the other flats in the building are also freehold, you and your neighbours will have to coordinate yourselves to look after any shared spaces, and you are reliant on your neighbours to maintain their part of the building and uphold their part of the bargain.

It is also important to understand that for this reason, certain complications can arise if there are any issues with the structure of the building, such as any cladding issues. This could create huge problems and friction between owners to determine who is responsible for what.

The difference between leasehold, freehold and commonhold

If you live pretty much anywhere in the UK, then your property will either be a freehold, a leasehold or a commonhold. In certain parts of the UK, such as London, you find that a lot of flats are leasehold. However, in Scotland most properties are freehold, and most flats in Scotland are known as a ‘commonhold.’

Freehold is when you own the property as well as the land that your property sits in. You own this property and the land indefinitely, until you choose to sell your property to someone else.

When you own a leasehold property or flat, you will only own the home for a limited period of time. This will be noted in your contract. You also do not own the land that is underneath and around your house and its boundaries.

Commonhold properties are when the owner owns the individual freehold for their property, but for a certain limited period of time. When it comes to flats, any shared spaces will be looked after by a company dedicated to ensuring that these spaces remain looked after and in good shape structurally.

If you are confused about whether your property in the UK is a freehold, a leasehold or a commonhold property, then you will need to dig out and check your title deeds on your paperwork and contract from when you first bought the property or flat.

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Can I get equity release if I own a freehold flat?

The short answer is that yes, you can take out an equity release plan if you own a freehold flat. However, you also have to own the leasehold on the flat, too. If you do not have a leasehold contract in place, then you might be able to get one in an attempt to apply for equity release.

Some people also only own a share of a freehold flat. The term ‘share of a freehold’ is when you agree with the other owner of flats inside a building to purchase the building’s freehold together, so that you all have more ownership and control over the building.

Owning a percentage of the freehold of a property also means that when it comes to extending the lease on your flat, you will save yourself some money. Moreso, when it comes to selling your flat and property, you might be able to sell the property for a lot more than you initially bought it for.

If you own a freehold flat, or only own a share of a freehold flat, then you might still be able to release equity from your home. Whilst it might be slightly more complicated, it is possible.

Benefits of taking out an equity release plan on a freehold flat

There are many benefits associated with taking out an equity release plan on a freehold flat. Most people release equity from their home because they are in need of some additional income, which is perfect for anyone who might be living in a flat and currently struggling financially.

Most people who take out an equity release plan on a freehold flat end up taking out a lifetime mortgage, as opposed to a home reversion plan. When you take out a lifetime mortgage, you will remain the owner of your property or flat until you pass away or move into a care home.

When you do so, your next of kin(s) will be responsible for selling your property, and the funds that they receive from the sale of the property will go towards paying off the equity release loan.

The value of your property should be more than enough to cover the cost of the equity release loan, and anything left will go to your family and next of kin(s) as an inheritance. Even if the value of your property has decreased significantly, your family and next of kin will never be reliable for paying off the debt from the equity release loan.

You also do not have to repay the loan whilst you are still alive, but can choose to pay off a bit of the loan each month if you choose to, to stop compound interest building up. This is a great way of reducing the overall loan amount, and might mean that your loved ones and next of kin(s) will be left more inheritance after selling your property.

When you release equity from a freehold flat, the money that you receive from your equity release loan will be completely tax free. You will also be able to spend your equity release funds on whatever you want to.

Lots of people choose to spend their funds on improvements for around the flat, which could include improvements to your home which will make it more comfortable and easy for you to grow old in.

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Can you take out an equity release loan if no leasehold is in place?

The short answer is that yes, you can take out an equity release loan on a freehold flat if there is no leasehold in place. However, this is a lot harder to do and will incur more complications.

For example, this might not always be the best decision for you as it will change what rights you have as an occupier of the building.

Subsequently, this might mean that there are more complications when it comes to moving out of the property and selling up. This is particularly more complicated if you have other people, who do not own the property living with you.

This is why it is incredibly important to talk to an equity release advisor and equity release solicitor before taking out an equity release plan. This will ensure that equity release is the right decision for you, and you are placed on the right equity release plans for you and your current situation.

Talk to Equity Release Warehouse

If you are in need of help and advice when it comes to taking out an equity release loan on a freehold flat, then speak to a member of the team at Equity Release Warehouse.

Our team of advisers at Equity Release Warehouse are on hand and in the best place to advise you on what plans you might be accepted for. They will also talk you through the application process from start to finish, and will be able to recommend the best lenders for you and your financial situation.

Our team will never force you into making a decision. In fact, our team are simply here to provide you with all of the relevant information and advise you on what plans you should apply for.

Start by calling our team today on 0330 058 1579 or by visiting our website online at www.equityreleasewarehouse.com.

References

[1] https://www.gov.uk/leasehold-property