How to sell with equity release
If you have taken out an equity release plan, you might worry that selling your home is not an option. Fortunately, you can still relocate or downsize.
Equity release can be a way for older homeowners to access the money built up in their home over the years, but what happens if you decide to move after you have taken out a plan?
Whatever your reasons for relocating, you should still be able to sell your home and buy a new one once you have taken out an equity release plan – but there are some considerations that you need to be aware of.
Here we explain what you need to know about selling your home with equity release.
Why you might sell your home with equity release
Equity release is available to older homeowners over the age of 55. Yet, while many people will be looking to wind down at this stage of life, circumstances can change, and many older homeowners may decide to move after releasing equity from their home.
It may be that you tire of city life and decide to move to the coast, or grandchildren come along and you would like to be closer to family. Alternatively, it may simply be that the family home you’ve had for years becomes too much as you get older and downsizing to a smaller property makes sense.
How selling a home with equity release works
So long as you purchased your plan from a member of the Equity Release Council, your lender should allow you to move to a ‘suitable alternative property’.
This means it will need to assess the new property you are buying, in the same way it assessed your current home when you originally took out your equity release plan. This is principally to confirm its value and ensure that there will be no problems selling it on the open market when the plan comes to an end.
In particular, equity release providers are not likely to accept specialist retirement properties and this is one of the many reasons why it’s vital to think very carefully about equity release and all its possible ramifications before you take out a plan.
Other properties that are likely to be deemed unacceptable to equity release providers include static and mobile homes, house boats, guest houses and B&Bs, farms, studios and basement flats.
If your equity release provider is happy with the property you would like to buy, it will simply transfer the policy to the new property. This is known as ‘porting’. Exactly how this works will depend on the type of plan you have.
For the most common type of equity release – a lifetime mortgage – this will be a case of transferring the debt from one property to another. The only potential catch is if the new property is not worth as much as your current one – in these cases, if the loan now breaches the lender’s borrowing limits, it may request that you repay a portion of the loan early from the sale proceeds.
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If you have a home reversion plan, the process is slightly different. With these schemes, you sell a percentage based portion of your home to the lender. So if your new home is cheaper, it may increase its stake in your new home to ensure that the value remains the same as it did in the old property.
Who can port my equity release for me?
In order for you to port your equity release plan from one property to another, you will need to talk to a specialist equity release adviser as you did when you initially took the plan out.
They will guide you on the type of homes that will be acceptable to your equity release provider and can help you work out whether proceeding is the right option for you.
Are there alternatives to porting my equity release plan?
In some cases, your adviser may recommend using the sale proceeds to repay an existing lifetime mortgage and take out a new one.
The advantage of this route is that you may be able to access a lower interest rate or, and, a more up to date plan.
The downside is that it won’t be as quick as porting with your existing provider. There may be more expenses, including early repayment charges on your current policy as well as all the set up charges associated with taking out a lifetime mortgage, such as legal advice.
Your adviser should be able to calculate the likely cost of each option to help you make the right choice.
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Rachel Lacey is freelance journalist with 20 years experience. She specialises in personal finance and retirement planning and is passionate about simplifying money matters for all. Read more