Equity Release

danco

I live in a recently built block of flats for the over 60s. The ground floor contains a restaurant that gets most of its custom from the public but has a dedicated area for the resident.s

It seems that most equity release firms regard this as meaning that the building has a commercial element, and they won't lend because they think it is a liability. I am surprised at this, as I would regard a restaurant as an asset in a building for the over 60s, and this is borne out by the opinions of other residents and potential residents.

One firm did indicate that they would make an equity release even knowing about the restaurant. They proceeded as far as sending a surveyor, but then refused to make an offer because of the "commercial element".

I am wondering if it is worth asking my adviser to see if they will change their decision. I suppose it can do no harm, just waste some of his time. Is there any point in finding another adviser and making another application, or would this just be a further waste of time? Does anyone have any other useful suggestions?

Please DO NOT tell me that equity release is not a good idea. I have looked carefully at my financial and personal situation, and it is clear that the convenience and peace of mind supplied by an equity release (if I could get one) far outweigh the financial downside for me.

Browntoa

There are specialised equity release companies that offer it on flats above shops  ( commercial properties )

I'm assuming it's slightly more complex than just that 

danco

I can't actually see why it should be complex. The restaurant is part of the block, so presumably there would be a cost to the freeholder if the restaurant closed, but there should be no cost to any of the residents. And the so-called "commercial element" does seem to be the surveyor's objection.

My options are somewhat limited, as retirement interest-only mortgages (which could be an alternative) may not be available to someone over 85.

The issue only came up last night after the surveyor had reported; until then I had assumed that the firm was not worried about the restaurant. I haven't had time yet to talk to my adviser or my more general financial adviser.

danco

To be precise the surveyor said

Future saleability is poor and will be limited due to the property type; Commercial premises on ground floor.

I am not sure if he thinks the saleability is poor in general or if it is the restaurant that mostly concerns him.

I did try equity release just before the pandemic, and was refused then because it was claimed that saleability was poor. We have had a reasonable number of sales since then, but of course not that many.

eddddy

danco said:

I am wondering if it is worth asking my adviser to see if they will change their decision. 

The equity release company will have hired a valuer from a valuation company to do the valuation - and the valuer will have said the property is unsuitable. If you challenge the decision, the equity release company will probably just ask the valuer again.

It's very, very, very unlikely that the valuer will change their opinion - unless you have some important new facts, which the valuer didn't know about.

i.e. The valuer won't say to the equity release company...

"You hired me to value the property. I said it was unsuitable. But I've now realised that I'm incompetent and I made a mistake. The property is suitable after all."



So perhaps your choices include...

• Ask your adviser to try a different equity release company, who might use a different valuation company and/or have different rules about the types of property they'll accept

• Find another adviser who will try different equity release companies, who might use a different valuation company and/or have different rules about the types of property they'll accept

GDB2222

I have a vague recollection that the safeguards on service charges that normally apply to residential blocks don’t apply if there’s a commercial element.

IF I’m right about that, the service charges might increase greatly, which would affect saleability. 

eddddy

GDB2222 said:

I have a vague recollection that the safeguards on service charges that normally apply to residential blocks don’t apply if there’s a commercial element.

I don't think so.

But there are other implications - like the leaseholders don't have the statutory right to buy the freehold or the "Right to Manage", if more than 25% of the building is commercial.

(But the freehold might be very expensive anyway, if it includes a commercial restaurant.)


Being a retirement flat is more of a problem - some equity release companies won't lend on those. Probably because they can be difficult to sell. It sounds like having the restaurant is making  it even tougher.

GDB2222

eddddy said:

GDB2222 said:

I have a vague recollection that the safeguards on service charges that normally apply to residential blocks don’t apply if there’s a commercial element.

I don't think so.

But there are other implications - like the leaseholders don't have the statutory right to buy the freehold or the "Right to Manage", if more than 25% of the building is commercial.

(But the freehold might be very expensive anyway, if it includes a commercial restaurant.)


Being a retirement flat is more of a problem - some equity release companies won't lend on those. Probably because they can be difficult to sell. It sounds like having the restaurant is making  it even tougher.

If it’s just harder to sell, the equity release company could just use a lower valuation?

Is this a loan based equity release or is the op looking to sell the reversionary interest?

eddddy

GDB2222 said:

If it’s just harder to sell, the equity release company could just use a lower valuation?

Maybe. But it sounds like retirement properties are difficult in general.

Age UK say:

Equity release

3.2 Conditions
...
there may be restrictions on the type of property providers accept and the condition. Leasehold retirement housing may not be acceptable. 

Link: https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs65_equity_release_fcs.pdf

(And I guess you need to be careful of rogue advisers who charge fees for equity release applications, when there is little or no chance of retirement property being acceptable to the equity release company.) 

GDB2222

eddddy said:

GDB2222 said:

If it’s just harder to sell, the equity release company could just use a lower valuation?

Maybe. But it sounds like retirement properties are difficult in general.

Age UK say:

Equity release

3.2 Conditions
...
there may be restrictions on the type of property providers accept and the condition. Leasehold retirement housing may not be acceptable. 

Link: https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs65_equity_release_fcs.pdf

(And I guess you need to be careful of rogue advisers who charge fees for equity release applications, when there is little or no chance of retirement property being acceptable to the equity release company.) 

T hey knew it was a leasehold retirement flat before they sent the surveyor out, surely?

danco

Thanks, folks, your comments are helpful. Yes, it seems that retirement properties are difficult, but certainly the company knew it was a retirement property when considering providing an equity release.

I think there may not be any other companies, as many of them do consider a restaurant as commercial premises, and so won't make an offer if there is one. Seems daft to me, but then so many decisions by companies seem daft.

I actually like the idea of getting my adviser to challenge the decision. Even if he firm provides the same valuer he doesn't actually have to change his opinion. It's possible that there has been a miscommunication between two parts of the equity release company. The valuer has stated that there are commercial premises without apparently stating that these premises are the restaurant. And the firm specifically accepted that the presence of a restaurant was not a bar to providing equity release. The person declining to act may well not have known (since the surveyor did not say) that the "commercial" element was only a restaurant, and that this had been considered in advance and was acceptable.