Can I Sell My House if I Have Equity Release? Quick Answer
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Can I sell my house if I have equity release?
It’s common for people with an existing equity release plan to question whether they can sell their current home to move into a new property, possibly a smaller one as part of a downsizing plan.
The answer all depends on the value and type of property you plan to move into, and some other factors. We discuss and explain the different possibilities below.
A simple explanation of equity release
Equity release is available to outright homeowners over 55 years old. They can release some of the equity in their home as a cash lump sum or drawdown facility without needing to make principal or interest repayments. Instead, the loan is repaid when the house is sold after the last surviving homeowner dies, or if they need to move into long-term residential care.
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What are equity release schemes?
Equity release schemes are the financial products that make equity release possible. They are provided by banks, mortgage providers and specialist equity companies. There are two equity release products in the UK, with one variation.
- Lifetime mortgages
- Enhanced lifetime mortgages
- Home reversion plan
What is a lifetime mortgage?
A lifetime mortgage is the most common of all equity release plans in the UK. It allows you to access some of your equity as a tax-free lump sum or drawdown that comes with a fixed compounding interest rate. The interest adds to the total debt and you don’t have to pay it back monthly – but you can if you prefer. The total debt is only paid back from the sale proceeds of the home.
An enhanced version of this plan takes into account your health and lifestyle. Basically, people with a reduced life expectancy may be able to access more of their equity to borrow more. No medicals are required as part of these plans.
What is a home reversion scheme?
A home reversion scheme allows you to take out some of your home equity in return for a greater percentage of your property’s future sale value. For example, the loan may be worth 20% of your property value but will need to hand over 50% of its sale value when the time comes. No interest is usually charged.
Why consider an equity release plan
Most older homeowners consider taking out an equity release plan to allow them to enjoy a more comfortable retirement, which means different things to different people. You may want to live an easier life without debt, or you may have big plans to travel the world.
Another reason people consider equity release is to gift the money to family and watch them enjoy and benefit from it while they are still alive.
Do you still own your house with equity release?
You are still the 100% owner of your home if you take out a lifetime mortgage. The money you received is a loan against your property that you will repay, and therefore ownership has not changed hands. However, with a home reversion scheme, you are giving up ownership of a percentage of your home. You’ll still own your home, but you’ll own it along with your lender.
What is the Equity Release Council?
The Equity Release Council is a voluntary membership group in the equity release sector. The best and most trusted lenders subscribe to the council with a membership, and as part of this membership, must follow the strict rules and guidelines to raise the standards in the niche.
It’s advised to only consider a plan from a current member. In doing so, you will be protected in lots of ways, including through the negative equity guarantee. This is a guarantee that you will never owe more money than what your home sells for.
For example, if your mortgage debt equates to £220,000 due to rolling interest but your home sells for £190,000, the shortfall of £30,000 will not be owed by your estate or by estate beneficiaries.
The council also provides guidelines on allowing homeowners to sell their home and move house after taking out a plan.
Can you sell your house if you have equity release?
The simple answer is yes. But things aren’t quite that simple.
It is possible to sell your house and move to another property when you have already taken out an equity release plan. If you have a lifetime mortgage or home reversion scheme through an equity release provider that is a member of the Equity Release Council, they should agree to allow you to move to a ‘suitable alternative property’.
The equity release provider will need to deem the new property you move to as suitable in the same way they assessed your current residence. If the property is of the same or higher value without foreseen issues selling it on in the future, then there should be no issues. The lender can simply switch your current lifetime mortgage to the new property. This is officially known as porting.
However, if you want to downsize to a smaller or possibly less valuable property, then you may have to pay some of your equity release plan off earlier, which may also trigger early repayment charges. You may be able to avoid these fees by asking for a downsizing clause or downsizing protection to be included in your equity release plan.
Some properties you may want to move to may be difficult to sell in an open market, such as Airbnbs, boathouses, mobile homes or static homes. This may not be considered as a suitable alternative property and your lender could deny your request. If you have plans to move to any of these property types, you should let your financial adviser know from the start.
Alternatives to porting
It’s essential that you consult with a financial adviser or mortgage expert when you are considering selling your home and moving with an existing equity release plan. Just as you sourced advice when you first took out the loan, the same is required now.
In some situations, the adviser may recommend an alternative strategy to porting, such as paying off your current plan and getting a new one on another property. They should account for all fees and charges to identify the cost-effective option. But this process would take longer.
Can you lose your home with equity release?
Equity release schemes from members of the Equity Release Council ensure your home cannot be repossessed in normal situations. Your home will always be yours without having to pay rent or face the threat of eviction. It must only be sold if you go into long-term residential care or after you die.
Even after death, some equity release providers will allow the estate beneficiaries to keep the home if they pay off the debt. This may be preferable if the home has sentimental value or may be used by one of the beneficiaries.
What is the catch with equity release?
Some people speak of a ‘catch’ with equity release, often referencing the compounding interest that can more than double your debt, which significantly affects how much inheritance you can pass on.
But there is no ‘catch’ if you take the time to fully learn about equity release plans and how they work. This is best done by reading guides like these, but also through independent expert advice that is authorised and regulated by the Financial Conduct Authority.
Equity release and moving house – quick recap!
Members of the Equity Release Council must allow you to move house if the new home is a suitable alternative, meaning of similar value and just as easy for the lender to sell on in the future. Some unique properties are difficult to sell and can be excluded from this, such as boat homes or remote farmhouses.
If you decide to move to a suitable alternative after taking out an equity release plan, you can take your plan to the new property in a process known as porting.
But if you downsize or move to a less valuable home, equity release providers will ask you to pay off some of your plan first, which could trigger early repayment fees if you do not have a downsizing clause in the agreement.
Read more guides all about equity release plans!
We have answered plenty more frequently asked questions about equity release plans on the MoneyNerd blog.
If you want to know about equity release and its relation to inheritance tax, means-tested benefits, interest rates or just the overall benefits and risks – we have content for you. All of our guides are free and written to keep you in the know.