Can I Sell My House if I Have Equity Release?
Equity release products provide homeowners with financial options that may suit their needs as they get into retirement age. An equity release loan can boost regular income, or provide a lump cash sum, when other types of financial product would not be suitable at this later time in life.
In recent years, equity release plans have become very popular, with people looking to access the value of their property while they are still able to enjoy using the money. Some people use equity release payments to supplement their living expenses during retirement, or to pay for a luxury holiday, buy a caravan or have home improvements completed.
When you take out an equity release plan, you can choose between regular payments, a lump sum of cash or a combination of both. You can then use the money however you choose, which could be to provide financial support to your family now, rather than waiting until you die.
There are two main requirements that equity release providers require from applicants. The first part of criteria is that the applicant is at least 55 years old, although some providers will only provide equity release plans to people aged 60 and over.
The second requirement is that the applicant has paid off their mortgage, or at least most of it, when they take out an equity release plan. There are additional criteria, which can vary between different equity release product providers, including the type and value of property they will accept.
Benefits of equity release
One of the main benefits of taking out equity release is that there are no monthly payments to make, unlike most other types of loan. Therefore, if someone is retired and no longer has salary to cover monthly loan repayments, they are still able to access money if they want to. The loan is not repaid until the property is sold, which would be upon the death of the homeowner, or when they go into long-term care accommodation.
The other key advantage of getting an equity release plan, is that you are able to continue living in the property, while accessing the equity in it. The alternative option would be to sell the property and move into a smaller property to access the equity.
For many people, the idea of remaining in their home is more appealing than selling and moving into a new property. Therefore, equity release can be a great solution for some homeowners once they reach 55 years of age and want to access the value they have built up in their property.
However, before taking out an equity release product, it is important to check that the terms of the agreement will not result in an unwanted situation later down the line, if your circumstances change. For example, if one person in a couple dies or moves into long-term care accommodation, the other person may want to sell the house.
Moving with an equity release plan in place
The majority of equity release plans allow you to transfer the loan over to a different property, as long as certain criteria is met. The new property must meet the current lending criteria, which can be a problem for some people looking to move. Some lenders will not transfer a loan onto a property that is cheaper, for example, so downsizing can be difficult or even impossible.
There are lots of reasons why a person may wish to sell their property. They might want to re-locate to be closer to relatives, or they may want to reduce the amount of maintenance and upkeep by moving to a smaller, lower maintenance property. Many people choose to downsize as they get older and their children move out of home, as they no longer need as much space.
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How selling a home with equity release works
Before agreeing to an equity release plan, you should check the details regarding whether you are able to move the loan to a new property, should you want to in the future. Another detail to check is whether there is a no negative equity guarantee, as without this, your beneficiaries could end up in situation where there is still money owed, even after the property has been sold.
A lender should allow you to move to what they deem to be a suitable alternative property, a term that they put in place to ensure they will not lose out financially by you moving to a new property.
In the same way that your original property was assessed to check whether it was suitable for securing an equity release plan against, the new property that you are looking at buying will be assessed for suitability.
If the equity release provider is happy with the suitability, you will be allowed to transfer the loan to the new property, otherwise known as ‘porting’.
How does porting equity release work
Before you start looking at new homes, you should speak to your equity release provider about the criteria they have for acceptable properties. They will usually refer you to a specialist equity release adviser or broker, who will discuss the types of properties that will be accepted for porting. They will also explain which type of properties you are not able to buy under the terms of the equity release plan.
The types of properties that are usually unacceptable include specialist retirement properties, as well as studio and basement flats. They will also generally decline properties such as static and mobile homes, farms or house boats. They do not want to take on a property that may be difficult when it comes to selling.
When you use a broker, as well as explaining which types of properties are going to be acceptable to your equity release provider, they will also take care of a lot of the work involved in porting. Therefore, using a broker who specialises in equity release will help to make the process much simpler and straightforward for you.
A whole-of-market broker like Boon Brokers will also be able to find every single equity release plan on the market to recommend the one that is most suitable for your circumstances. They will be able to find you the most flexible options for equity release plans, so that you are able to move home and you will not be financially penalised for doing so.
Using a broker will also ensure that you receive expert advice regarding what happens in terms of the process of moving property and how it will affect your equity release plan.
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Are there alternatives to porting?
Yes, there are some alternatives to porting and which option is the best one will depend on your specific circumstances.
When you speak to an equity release adviser, they may explain to you that porting is not the best option. In some cases, they might recommend that you repay the lifetime mortgage with the proceeds of the sale of the house and take out a different plan, with a cheaper interest rate.
There may be more equity release products available on the market now compared to when you took your original plan out and the new terms and details may suit you better. A broker will be able to find the best solution based on your existing loan terms and what else is now available on the market.
If you decide to repay your loan and take out a new equity release plan, it will generally take a lot longer than porting with your existing provider. You will go through the entire application process again with a new equity release provider, as well as the work involved in repaying and settling your existing loan. Your broker will usually perform a lot of the administration work involved in this, but it will still take longer than porting.
One of the key factors in deciding whether it is worthwhile repaying your existing loan to switch to a new one, is whether there is an early repayment charge to pay. If there is an early repayment charge, moving onto a new plan with better terms might not be financially beneficial, so a broker can calculate this for you.
Types of equity release plans
When you are looking at different types of equity release plans, you should be able to find some that offer more flexibility in terms of being able to move house.
There are two main types of equity release plans, which are lifetime mortgages and home reversion plans. With lifetime mortgages, you take out a loan that is secured against your main residence, while you remain the owner.
With home reversion, you are selling some, or all, of your property in exchange for a lump sum payment or regular payments, or both. The more common type of equity release plan is the lifetime mortgage, which provides more flexibility.
One option that has become popular is a downsizing protection plan, which you can take out with some lifetime mortgages.
What is downsizing?
Downsizing is a very common process for people later in life, where they have lived in a large family home with multiple bedrooms, and they decide to move into a smaller property.
There are many benefits of doing this, such as reducing the amount of housework, gardening and property maintenance. Larger properties generally have more expensive maintenance than smaller properties. For example, getting a new roof is considerably cheaper for a property with a roof that is half the size and redecorating a home that is half the size, is usually half the cost.
Another reason that people might downsize is so that their utility bills are lower, as smaller properties generally consume less gas and electricity than larger properties. People sometimes downsize into a property that is more suitable for older people, without steep stairs, for example. They may consider moving into a bungalow, so they do not have to worry about getting up and down the stairs as they get older.
The original home may have been purchased when there were children still living at home and now they have grown up and moved out, so the additional bedrooms are no longer required. There are plenty of reasons people look at downsizing later in life, so it is a good idea to keep these possibilities in mind when you consider taking out an equity release plan.
How does downsizing protection work?
Downsizing protection allows you to downsize your property and repay your equity release plan. By doing this, your beneficiaries will not have to arrange for the loan to get paid off when you die, and it should ensure they get more inheritance.
Around half of the equity release plans on the market now offer downsizing protection, which gives you the flexibility to downsize your property at a time that suits you.
Each lender has slightly different criteria for their downsizing protection. For example, some lenders will only allow you to move home at least five years after the start of your lifetime mortgage.
Once you speak to your equity release plan provider about downsizing, they will arrange for your new property to be valued by a valuer. They will then assess whether the new property is acceptable to transfer the lifetime mortgage over to.
If the property is not acceptable to them, the lender will usually allow you to sell your property, repay the lifetime mortgage loan and you would not be required to pay the early repayment charge.
Equity release plans can be a great option for people later in life, but it is important to check that the plan you choose will not restrict you from selling your property.
Call Boon Brokers today for free, impartial whole-of-market advice and we can find you the best equity release plans, while ensuring you have the flexibility to move home in the future.