Can I Sell My House If I Have An Equity Release Plan?

Before you release equity from your home, it’s important to consider what you want your future to look like, and whether this aligns with the equity release scheme. A big part of this is considering whether you will want to sell your home.

If you believe you are going to want to sell your home, it may be best to avoid equity release as there are routes you could take that better facilitate selling up. Having said that, don’t rule out equity release entirely until you speak to an adviser, as it is certainly possible to sell your house through equity release.

In this article, we hope to answer the question ‘can I sell my house if I have an equity release plan?’ by explaining how it works, why some homeowners do it, how you can secure downsizing protection, and alternatives to selling your home with equity release.

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What is Equity Release?

There are many ideas about what equity release is in the media, and unfortunately, many of them do not reflect the reality of equity release. Some people believe this scheme is unsafe, unpredictable, and inflexible.

However, over the years, equity release has changed a significant amount, and it has become a very safe, predictable, and flexible scheme for homeowners. When you choose to release equity, you have to meet with a solicitor and you are strongly advised to meet with an equity release adviser, which ensures you are knowledgeable about the scheme before getting started with it.

These days, equity release is intended to provide financial support to people aged over 55 years old who own valuable properties.

Instead of offering financial aid in the form of a traditional loan that is unsecured, the loan is secured against the homeowner’s property, so its size reflects the property value.

In terms of safety, equity release is very safe nowadays as it is well-regulated and there are many people involved in the scheme who keep it as safe as possible i.e. equity release advisers, financial advisers, solicitors and lenders.

As for predictability, you will be informed of the details of the scheme before joining. Finally, equity release is now very flexible as there are many different types of equity release plan you can have.

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How Does Equity Release Work?

In terms of the specifics of how equity release works, this will depend on the plan you select. There are lifetime mortgages and home reversions.

If you have a lifetime mortgage, you will have to pay off your existing mortgage (perhaps through the equity release loan) and then switch to the equity release mortgage. Beyond this, nothing else needs to happen urgently, as you do not need to repay your loan.

With a home reversion plan, you have to sell part of your home for less than the market value. You will still benefit from the share that you own, but you will not benefit from any rise in value of the share that belongs to the equity release company. Again, no repayment is necessary, so you do not have to pay off your debts.

The debt for a lifetime mortgage or a home reversion is paid off when the home is sold, either when the homeowner passes away or goes into long-term residential care.

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Can I Sell My House If I Have An Equity Release Plan?

The short answer is yes, you can sell your house if you have an equity release plan. If you are considering equity release and you are worried that this will hold you back, rest assured that there are many plans and lenders that will permit you to sell your house.

Perhaps you have already taken out equity, and you are worried that you won’t be able to move out of your current property and into a more suitable one. Again, please don’t worry about this, as you will be allowed to move.

Having said that, there are limitations to the home you can purchase. This means that you may want to consider an alternative to equity release if you want the freedom to move to any property of your choosing.

Some examples of properties that may not fit lending criteria are: properties worth less than £70,000, and properties that need to be renovated (1).

Certain types of property are much less likely to be accepted than others. For example, you have much more chance of moving into a freehold house than a leasehold house, particularly if the lease is running out on the latter. However, if there are many years left on the lease, the property will usually be accepted.

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How Can I Sell My House If I Have An Equity Release Plan?

The first requirement to sell your house is that your equity release lender is a member of the Equity Release Council (ERC). The reason this is so important is that it means you are protected when you want to move house with equity release.

Any equity release provider who is a member of the ERC has to allow you to move to an alternative property, so you will never be forced to stay in your current property.

However, they are allowed to put restrictions on this, so you will not be able to choose any home to move into.

According to the Equity Release Council website, equity release consumers ‘have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan’ (2).

Put simply, when you release equity from a property, you are offered a loan on the condition that your property sale will make back this money for the lender. This means that when you move to a new home, the lender needs to be confident that the value is high enough for them to still benefit from the house sale.

If you moved to a very low value property that will not be desirable when it goes up for sale, the lender could lose out on money, so they have to make sure the new property is suitable.

This not only includes the value, but also things like the condition of the property, the size of the property, and its location.

If your equity release lender is not a member of the ERC, you may be in trouble as it is possible that they can prevent you from moving house. In this situation, all you can do is repay the loan early, which usually comes with an early repayment charge.

However, anyone who speaks to a professional equity adviser before releasing equity will be advised about the Equity Release Council, so most homeowners will not find themselves in this position as they will have already made an informed decision when choosing their lender.

Please call our 24-Hour Helpline: 0330 058 1579

What Type Of Equity Release Plan Would Allow Me to Sell My House?

Not all equity release products facilitate moving home.

If you have a current lifetime mortgage, you can sell your home through equity release. This is because it’s possible to transfer your mortgage to another property and the lifetime mortgage provider will alter the loan amount to reflect the new property’s value.

You can do this no matter which lifetime mortgage you have taken out (lump sum, income, interest only, drawdown, buy to let, enhanced/ill-health, second home/holiday home or voluntary repayment).

On the other hand, it isn’t possible to sell your home if you are part of a home reversion scheme. This is because you will have sold either a share of your home or the entirety of your home to an equity release lender, so you are no longer the homeowner.

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Why Would You Choose to Sell Your House After Taking Out Equity?

One reason you may consider selling your property after releasing equity is that you want to live closer to your family as you get older, particularly if you need to rely on them for care.

Perhaps you were in good health when you took out equity, so you were happy to be independent, but now you would benefit from living close to family who can take care of you.

Another reason to move home with equity release is that you are no longer happy in your location for safety reasons. Areas can deteriorate quickly with a lack of funding, and it’s never wise to stay in an unsafe area as a pensioner, so you may decide to move to a more secure location.

Some homeowners want to sell up as they can no longer maintain their property as they are getting older. If your home has many rooms and takes a lot of time and effort to clean and tidy, you may prefer to downsize so that you are better able to manage your house.

Finally, you may live in a very busy urban area that isn’t relaxing for retirement. In this situation, you might decide that you would prefer to find a property in the countryside where you will find peace and quiet.

Please call our 24-Hour Helpline: 0330 058 1579

Can I Move to a Smaller Property After Releasing Equity?

Yes, you can move to a smaller or cheaper property after releasing equity. You may do this because you want your house to be easier to manage or you don’t need all the space that you have.

If you do this, keep in mind that you may not be entitled to as much money from your equity release lender. This is because when your property is lower in value, you have less to offer to the lender, so they will offer less to you in return.

It is also possible that you will have to partially repay your loan to make up for the amount that the lender is missing out on when you move to a lower value property (3).

Can I Move to a Larger Property After Releasing Equity?

Yes, you can move to a larger or more expensive property after releasing equity. Some equity release consumers do this as they realise they would benefit from more rooms for their family to stay in, they need more individual space from one another, or they want access to more grounds.

You may qualify for a higher loan if you move to a larger property, provided that the value is higher. However, remember that the bills are also likely to be higher.

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What is Downsizing Protection For Equity Release?

Usually, if you want to complete your equity release scheme, you will have to pay an early repayment fee of up to a quarter of the cost of the loan. However, downsizing protection ensures that homeowners can repay their loan in full and move to a smaller property without having to pay this fee.

There are some limitations to the downsizing protection scheme. One of these is that homeowners usually have to have been using equity release products for at least five years to benefit from this.

Downsizing protection is not available for everyone, as it depends on the lender you go with and the plan you select.

Contact us to find out how you could access downsizing protection, as it’s a great way to manage your finances if you aren’t ready to downsize yet, but you know you may want to at a later date.

Please call our 24-Hour Helpline: 0330 058 1579

Alternatives to Selling Your Home With Equity Release

If you do not like the idea of selling your home with equity release, there are alternative options you can choose before then.

To begin with, you could simply downsize right now instead of securing downsizing protection through equity release. This would prevent you from being in debt. However, it would cost a lot of money in the short term, and it would likely be stressful as moving house always is.

Another option is to get a traditional mortgage on a new home, which may work for you if you are in the position to make regular payments. However, anyone with a low income would benefit from equity release as there are usually no affordability checks for this scheme (there are for traditional mortgages).

Please call our 24-Hour Helpline: 0330 058 1579

Can I Sell My House If I Have An Equity Release Plan – Speak to An Adviser

To find out how you can plan to sell your home with equity release in the safest way possible, get in touch with us to speak to an adviser. We offer a free consultation for all new customers, so we invite you to make the most of this.

Overall, we would recommend that you avoid using equity release as a means to move house, as the scheme is generally designed for you to remain in your home as long as possible. However, if you are determined to do this, we will help you figure out the best way to achieve it without putting yourself in a vulnerable financial position.

We are also happy to answer any other questions about equity release, so call us on 0330 058 1579 for more information. You can also see our frequently asked questions page for answers to common questions about releasing equity.

References

[1] Can you move home if you have equity release?  https://www.thetimes.co.uk/money-mentor/article/equity-release/

[2] The role of Equity Release Council https://www.equityreleasecouncil.com/what-is-equity-release/faqs/the-role-of-equity-release-council/

[3] Can I Move House if I Take Out an Equity Release Plan? https://www.agepartnership.co.uk/media-centre/equity-release/can-i-move-house-if-i-take-out-an-equity-release-plan/