Flat roofs, Commercial Property and Clutter are Barriers to Acceptance:
While criteria does typically vary from funder to funder, homes with flat roofs that take up more than 25% of the property, those close to commercial property or filled with clutter that makes a valuation difficult are less likely to be accepted.
The table highlights the most common reasons equity release applications were declined in 2020 verses 2019.
COMMON REASONS FOR EQUITY RELEASE APPLICATION DECLINES
| 2020 | 2019 | ||
| 1 | Flat roof (over 25%) | 1 | Commercial property |
| 2 | Commercial property | 2 | Flat roof (over 25%) |
| 3 | Clutter | 3 | Single skin |
| 4 | Flood risk | 4 | Flood risk |
| 5 | Foam | 5 | Asbestos |
| 6 | Structural | 6 | Clutter |
| 7 | Property value | 7 | Foam |
| 8 | Single skin | 8 | Ex-local authority |
| 9 | Retention | 9 | Perform worse |
| 10 | Ex-local authority | 10 | Frame |
Interestingly, while flat roofs, proximity to commercial property and flood risk have been consistent barriers over the last two years, single skin (i.e. no cavity wall) has fallen out of the top four to be replaced by clutter.
Excessive clutter can make it extremely difficult for a surveyor to ascertain the integrity of the structure so many impact the resale value. Prior to the pandemic, this may have been less prevalent as it will have been noticed during the face-to-face advice process and explained to the customers. Asbestos has also fallen out of the top ten as historic issues around this material become less common as they are rectified by homeowners but the use of foam remains an ongoing issue.
Dave Harris, CEO at more 2 life: “While the vast majority of cases move from offer to completion smoothly, some issues with properties that will impact the final resale value mean that they are more likely to be declined. It is vital that advisers know that properties with large flat roofs near commercial premises with foam insulation may struggle to be accepted so they can manage their clients’ expectations.
“That said with the pandemic restrictions and more advice than ever before being provided remotely, it has become far harder for advisers to pick up on details such as clutter or notice that something is not quite right with a structure. An in-depth and wide ranging discussion as part of the advice process can help – especially if any concerns are shared with the client and the lender.
“Every funder has slightly different criteria and as more2life work with a variety of different organisations, we are in the fortunate position that we can help the vast majority of our customers but we believe it is important to educate advisers on these common reasons for decline so that clients are not disappointed.”
Glossary
| Asbestos | Asbestos is carcinogenic and would need to be removed to make the property safe and ensure the resale value. |
| Commercial property | Proximity to a busy goods yard or pub will impact on the resale value. |
| Clutter | Extreme clutter can make it extremely difficult to ascertain the structural integrity of the building. |
| Ex-local authority | The value of the property depends on other tenants maintaining the communal areas and large collective bills for issues such as roof maintenance may be charged. |
| Foam | Certain types of cavity insulation are non-standard and may cause resale issues in the future. |
| Flat roof | Over 25% of the roof is flat causing potential leaks. |
| Flood risk | Properties on a flood plain can be hard to insure and therefore this impacts the resale value. |
| Frame | Timber framed buildings are of non-standard construction and may be harder to resell. |
| Perform worse | In the opinion of the valuer the property will perform worse than your average property in the market place, usually because of its condition or location i.e. a property adjacent to a petrol station may take longer to sell than one that isn’t. |
| Retention | Some lenders allow retentions for essential works, this means at completion some of the funds are held back and released upon completion of the works. However, these usually have set value limits that the retention cannot breach. It is possible that a case is declined due to the cost of the works is greater than the allowable retention limit. |
| Single skin | A property that typically does not have a cavity wall. |
| Structural | Structural issues raised by the surveyor can mean that resale is not possible or the property is not safe. |
| Value | Properties below the value of £75,000 are generally hard to take out equity release on as the NNEG is more likely to come into play. |