Is it possible to get an equity release using a bad credit home loan?

Releasing equity from a bad credit home loan is possible, although not always as straight forward as in other circumstances. With a bad credit home loan, you’re already considered slightly more risky than other borrowers where traditional lenders are concerned. You may have to prove your reliability and accept a higher interest rate.

What is an equity release?

Your equity is the part of the home you own, as opposed what still belongs to the bank or lender. Depending on the amount of equity you have in your home, you may be able to release it to use for other investments. These funds could allow you to invest in further property, make renovations or consolidate other bad debts.

Your lender may want to see that your intentions relate to your property, or improving your current financial situation – and this may also vary according to the amount you want to release.

An equity release often works out cheaper than a traditional loan, such as a personal or car loan, because the lender knows they have a valuable house they can sell to make their money back. However, you are still borrowing, so making timely repayments is crucial in order to minimise your risk.

What’s the difference with a bad credit home loan equity release?

In short, even though the lender has approved your original loan, you still carry risk. Your best bet is to improve how your application looks on paper so there’s little reason to refuse your request, despite your poor credit history.

  • Assess your credit situation: Take some time to look at your credit report so you know exactly what your lender will be assessing. Make sure it’s accurate, and get any problems resolved.
  • Take steps to manage your bad debts: Before you approach your lender, try to manage your bad credit and improve your outlook. This may mean consolidating existing debts or putting in a place a concrete credit card repayment plan.
  • Speak to a specialist broker: The world of mortgages is bewildering enough as it is, but when you have more complex circumstances, it’s worth speaking to an expert. Specialist brokers work with bad credit lenders every day and know how they think, and what they value. They can also advise you how to approach different lenders if that’s something that could benefit you.
  • Prove your reason for applying: Pull together as much evidence as you can about how you’ll invest the money and the return you expect to get from it. For example, if you’ve had your property valued and know that renovations could bump up the cost, get it in writing.
  • Understand your repayment plan: Your lender is going to look at your ability to keep up with repayments. Be sure that you’ll be able to pay off your additional loan without being too stretched, and that you can prove this to the lender.
  • Learn what credit score lenders expect before making applications: Do some research around the lender you’re working with and find out what kind of credit history they’re happy to work with now. This may be different to when your original loan was approved. If you still need to make improvements, it’s better to know this advance of applying.
  • Increase your equity: The more equity you own, the more attractive you’ll likely be to the lender as you’ll be surrendering a bigger portion of your home. This means the lender benefits more, and you may get more favourable rates or repayment terms.

Red Rock Mortgages broker team deal with a number of specialist lenders. Whether you’re looking for a bad credit mortgage for the first time, or for advice about how to make the most of it, contact us today.