Can Equity Release Make It Harder to Move House Later?
For many homeowners up and down the country over the age of 55, choosing to release equity from their home provides them with a practical way to unlock the money that is tied up in their home, without having to sell their home or downsize.
People choose equity release for a range of different reasons, including additional income, home improvements or to help loved ones and family members.
For many reasons, equity release has become an increasingly popular option for homeowners aged over 55 years old.
However, lots of homeowners still wonder whether or not equity release is the right option for them in the long term. For example, lots of people wonder whether or not choosing equity release will make it harder for them to move home in the future.
It’s an understandable concern, as whilst many people expect to remain in their current property for the rest of their lives, it is important to understand that circumstances can change unexpectedly.
For example, you might choose to downsize property, move closer to family or loved ones, or even relocate to a different part of the country.
Likewise, as you age you might require a home that’s better suited to changing health and mobility needs.
The reassuring news is that choosing to opt for equity release does not prevent you from moving home in the future.
However, it is important to understand that there are a number of rules, lender criteria and financial considerations that could affect your options if you wanted to move home in the future.
In this guide, we will explore and explain exactly how moving home works after taking out an equity release plan, as well as what restrictions you should be aware of and how choosing the right plan for you can help you later down the line.
Can You Move Home After Taking Out an Equity Release Loan?
The simple answer is yes; you can move home after taking out an equity release loan. In fact, most lifetime mortgages are designed to be portable, meaning that you can usually transfer your equity release loan from your existing property to another property, provided that certain conditions are met, as outlined by the Equity Release Council [1].
The good news is that this means that equity release isn’t designed to lock you into one property forever, as equity release lenders and the Equity Release Council are well aware that circumstances can change, especially considering equity release loans are designed to last years or even decades.
However, it is important to understand that moving home after taking out an equity release loan isn’t always as straightforward as simply selling one house and buying another. This is because your equity release lender will need to approve the new property.
They will consider the value and type of home you are purchasing, as this will likely have a significant impact on whether your existing equity release loan can be transferred.
Why Do People Move Home After Releasing Equity?
There are a number of different reasons why people choose to move home after taking out an equity release loan. It is important to understand that life rarely stays exactly as planned and your circumstances are likely to change as you get older.
This is incredibly important to bear in mind considering the fact that most equity release loans are designed to last years or even decades, as the loan is only repaid once you pass away or move into a care home.
However, it is important to remember that even if your property sale does not cover the cost of the loan, then you will be protected under the no negative equity guarantee, that ensures that your lender is liable to pay the difference, not you or your loved ones.
Even if you fully intend to remain in your current home, there are a number of different reasons why moving home later in life could become the right decision for you and for your family.
There are a number of different common reasons why you might choose to move home after taking out an equity release loan, including some of the reasons listed below for you:
- The need to downsize after your children have moved out
- The need to move closer to your children or grandchildren
- The need to buy a more accessible property
- The need to reduce your maintenance costs
- The need to move into a property that’s more economical in terms of heating
- The need to start fresh after a bereavement or divorce
As you can imagine, many people simply do not know these future plans when they first take out an equity release loan, which is why flexibility is an important feature to discuss with your adviser when it comes to which equity release loan you take out.
What Does a Portable Mortgage Actually Mean?
When an equity release loan or mortgage is portable, it means that your existing loan can potentially move with you to another property.
Rather than repaying the mortgage completely and applying for a brand-new mortgage or equity release loan, your lender simply transfers your loan onto your new home, provided that you meet the criteria laid out by your equity release lender [2].
This can be beneficial to a number of people because it avoids you from having to take out a completely new loan, which can be stressful and time consuming.
Likewise, it avoids you from paying any unnecessary legal costs and allows you to keep your existing interest rate. This makes the process a lot more simpler than having to start from scratch again.
However, it is important to understand that portability does not mean every property will automatically qualify. Your lender will have criteria when it comes to porting your loan and will still carry out checks before approving the move.
Will My New Property Be Accepted for Equity Release?
This is one of the biggest factors that determines whether moving house is straightforward. When you move home, your new home becomes the security for your lender and equity release loan.
Remember, equity release loans are paid back via the sale of your property once you pass away or move into a care home.
This means that your lender must be confident that the property meets their lending criteria, and that they will get their money back once your loved ones sell your property after you pass away or move into a care home.
There are a number of factors that will influence this, including the location of the property, as well as the condition and value of the property.
Although requirements vary between providers, lenders generally prefer properties that are made out of traditional material, that are in good condition, that are easy to sell on the property market, and that are freehold as opposed to leasehold.
Some properties can be more difficult to secure against, including retirement properties, homes with short leases if they are leasehold, listed buildings and properties that need a lot of renovation work.
If your chosen property doesn’t meet your lender’s requirements, then this means that you might have to repay some or all of your equity release loan before being able to move home.
What Happens If You Downsize Property?
Many homeowners’ release equity to people who are living in larger family homes before deciding to move somewhere smaller later in life and in retirement.
Downsizing after taking out an equity release loan is possible, although there is one important consideration to bear in mind.
If your new property is worth significantly less than your existing home, then your lender might decide that the loan is too high for the new property’s value, meaning that they wouldn’t feel confident that they would get their money back.
If this happens, then you might be asked to repay a part of the outstanding loan during the move.
Could There Be Early Repayment Charges?
Yes, you might need to make an early repayment charge depending on your circumstances and the terms of your individual plan.
You might encounter early repayment charges if you decide to repay the lifetime mortgage completely, your new property is not suitable for porting, or if you want to switch to another lender. Likewise, you might need to make an early repayment charge if you repay more than your plan allows.
However, it is important to understand that many newer equity release loans include features that provide greater flexibility than older equity release plans.
In fact, some even include downsizing protection, which allows you to repay your loan without having to make an early repayment charge if you want to move to a smaller property after a number of years.
This is one of the reasons why seeking professional equity release advice is so valuable before taking out an equity release loan.
Can You Borrow More When You Move Property?
Yes, you are sometimes able to borrow more money when you move home. If you are moving to a property that is worth more than your current home, then you might be able to increase how much you are borrowing.
Whether this is possible depends on a number of different factors including your age, your health, the value of the new property, your existing mortgage balance, your lender’s criteria and which loan you choose to opt for.
Some homeowners use this opportunity to release additional funds for home improvement, additional income or even retirement planning.
Does Moving Home Impact My Equity Release Interest Rate?
No, moving home after taking out an equity release loan does not always impact or affect your interest rate. If your lifetime mortgage is successfully transferred to your new home, then your existing interest rate will stay the same.
However, if your move requires a completely new equity release plan, then you will usually have to move onto whatever rates are available at that time with your chosen lender.
Depending on market conditions, this could work in your favour, or it might increase the overall cost of borrowing. This is an important question to ask and discuss with your equity release adviser.
The Importance of Choosing a Flexible Equity Release Plan
It is important to understand that not all equity release loans are the same. More modern equity release plans often include features that simply weren’t available years ago.
Depending on your chosen lender, you might be able to benefit from options and features such as voluntary repayments, drawdown features, inheritance protection, downsizing protection, fixed interest rates and early repayments.
These features are able to make a significant difference if your circumstances change later down the line, which could happen considering the length of a traditional equity release plan.
Questions to Ask Before Taking Out an Equity Release Loan
If there’s even a small chance that you might move house in future, then it’s worth discussing this with your adviser before choosing to take out an equity release loan.
There are a number of useful questions that you should ask your equity release adviser, including some of those listed below for you:
- Is the loan I’m opting for portable?
- Which types of property won’t be accepted in the future?
- What happens if I downsize property?
- Could I repay part of the loan without having to pay any early repayment fees or charges?
- Does this plan include downsizing protection?
- Could I borrow more after moving home?
Alternatives Worth Considering
If you are considering taking out an equity release loan and are already planning to move within the next few years, then it might be sensible to explore all your options before proceeding with an equity release loan.
Depending on your goals, there are a number of different alternatives including some of those listed below for you.
1. Downsizing
Moving before taking out an equity release loan, you might want to downsize and purchase a property that’s better suited to your long-term needs, whilst freeing up some cash by purchasing a smaller and cheaper property. Once settled in your smaller home, you could then consider releasing equity from your new home if you needed to.
2. Retirement Interest-Only Mortgages
Some homeowners find that retirement interest-only mortgages are more appropriate, especially if they have enough retirement income to meet the monthly interest payments.
3. Using Savings or Investments
Depending on the amount of money you need, using savings, investments or selling other assets might mean that you do not need to borrow money at all.
It is important to understand and remember that every situation is unique, which is why it is incredibly important to receive regulated financial advice before making any decisions.
Conclusion
As discussed above, taking out an equity release loan does not mean that you are committing to living in the same property forever.
This is because most modern lifetime mortgages allow homeowners to move home, provided the new property meets the lender’s requirements.
However, it is also important to understand that factors such as property type, property value and potential early repayment charges can all influence how straightforward the porting process can be.
If there’s any change that you may want to move later in retirement whilst considering taking out an equity release loan, then it is worth discussing this with your equity release adviser from the very start.
Choosing a flexible plan could give you more freedom if your circumstances change in the years ahead.
At Equity Release Warehouse, our team of specialist advisers believe equity release should support your retirement plans, not restrict them.
By understanding your long-term goals before taking out an equity release loan, you can make a better informed decision that works for you, both now and in the future.
References
[2] https://www.nationwide.co.uk/mortgages/moving-home/porting-your-mortgage/
