What is Equity Release?
Equity release is a financial product that allows homeowners aged 55 and over to access the value tied up in their property without having to sell or move. It provides a way to unlock tax-free cash from your home’s value while continuing to live there. The two main types are:
- Lifetime Mortgage – A loan secured against your home, repaid when you die or move into long-term care. Interest accumulates over time, but you retain ownership of the property.
- Home Reversion Plan – You sell a portion or all of your home to a provider in exchange for tax-free cash. You retain the right to live in the property rent-free for the rest of your life, but you lose ownership of the part you sell.
Can I Sell My House If I Have Equity Release?
You can sell your house if you have an equity release plan, but it requires careful planning and meeting specific conditions:
- Repaying the Loan: When you sell your home, the equity release loan, including any accrued interest, must be repaid from the proceeds of the sale.
- Portability: If you intend to move to another property, some equity release plans allow you to transfer (port) the loan to the new home, provided it meets the lender’s criteria.
- Shortfall Considerations: If the property sale does not cover the full loan amount, a no-negative equity guarantee ensures you will not owe more than the value of your home.
- Early Repayment Fees: Some plans may include early repayment charges if you sell before a certain period, so it’s essential to check your agreement.
If you do not plan to transfer the loan, selling the property will trigger the repayment process. After the loan and any fees are settled, any remaining equity will belong to you.
Can I Move House If I Have Equity Release?
Yes, you can move house with an equity release plan, but there are important considerations:
- Portability: Most lifetime mortgage providers allow you to transfer your plan to a new property, provided the property meets the lender’s criteria.
- New Property Criteria: The new property must meet your lender’s requirements in terms of location, value, and condition. Properties like flats in high-rise buildings, homes with non-standard construction, or properties in poor condition may not qualify.
- Repayment on Downsizing: If the new property is worth less than your current home, the lender may require partial repayment of the loan to keep within borrowing limits.
- Early Repayment Fees: Some plans charge penalties for transferring the plan before the end of a fixed term. Always check your plan’s terms for any associated costs.
Can I Rent Out My House If I Have Equity Release On It?
Generally, no. Equity release plans have strict conditions that require you to:
- Live in the property as your primary residence.
- Maintain the property in good condition.
- Not rent out the property or use it for commercial purposes.
However, some providers may allow exceptions in special circumstances, such as short-term letting (e.g., during a holiday) or renting out a part of the property, but this requires explicit written permission. Breaching these terms could result in the loan becoming immediately repayable.
How Do I Transfer Equity Release to Another Property?
The process of transferring equity release to a new property typically involves the following steps:
- Contact Your Provider: Inform your equity release provider about your intention to move and transfer the plan.
- Obtain Approval: The new property must undergo a valuation to confirm it meets the provider’s criteria.
- Repay Part of the Loan (If Required): If the new property is of lower value, you may need to repay part of the loan to satisfy lending limits.
- Cover Fees: Expect to pay transfer fees, administration charges, and legal costs.
- Complete Legal Documentation: Once approved, your solicitor will finalize the transfer to ensure the plan moves seamlessly to the new property.
What Happens to My Equity If I Don’t Transfer It to Another Property?
If you sell your house but do not transfer the equity release plan:
- The loan, including any accrued interest, becomes repayable.
- The proceeds from the property sale will first be used to settle the outstanding equity release balance.
- Any remaining funds after repayment are yours to keep.
- If the property value does not cover the loan, the no-negative equity guarantee ensures you or your estate will not owe more than the property’s sale value.
What Type of Equity Release Plan Should I Look For?
Choosing the right equity release plan depends on your long-term goals and flexibility needs. Recommended features include:
- Portability: Ensures you can transfer the plan to a new property.
- No-Negative Equity Guarantee: Protects you from owing more than your property’s value.
- Downsizing Protection: Allows partial repayment of the loan without penalties if you move to a lower-value property.
- Flexible Repayments: Look for plans that allow you to make voluntary partial repayments to manage the interest.
- Drawdown Options: Some lifetime mortgages allow you to release cash in stages, helping to reduce interest costs over time.
Why Might My Provider Reject My Equity Release Plan?
Your provider may reject an equity release transfer or plan for the following reasons:
- The new property does not meet the lender’s criteria (e.g., low value, poor condition, or non-standard construction).
- Your current property has fallen significantly in value, affecting loan-to-value ratios.
- You breach the plan’s terms, such as renting out the property without permission.
- Your personal circumstances have changed, impacting affordability or eligibility.
- The plan’s conditions, such as early repayment penalties, make a transfer financially unviable.
Why Would I Sell My House with Equity Release?
Selling your house while having equity release may occur for several reasons:
- Downsizing: Moving to a smaller, more manageable property.
- Relocating: Moving closer to family, healthcare facilities, or to a preferred area.
- Repaying the Loan: Using the property sale to settle the equity release loan and keep any remaining funds.
- Long-Term Care: Transitioning to assisted living or residential care facilities.
- Financial Needs: Accessing the property’s remaining equity to fund lifestyle changes, home improvements, or family support.
What Should I Do Next?
Here are the recommended next steps:
- Speak to Your Provider: Contact your equity release provider to understand the terms and options for selling or transferring.
- Get Professional Advice: Consult an independent financial adviser who specialises in equity release.
- Review Your Contract: Understand any fees, restrictions, or conditions in your current equity release agreement.
- Obtain a Valuation: Get an up-to-date valuation of your property to assess its current market value.
- Explore Alternatives: Compare other equity release products or financial options that may better suit your needs.
- Seek Legal Advice: Work with a solicitor experienced in equity release to handle the legal aspects of selling or transferring your property.
Important: Equity release can impact inheritance, tax positions, and eligibility for means-tested benefits. Always seek professional, independent advice before making a decision.
Frog Financial Management cannot provide advice on Home Reversion plans
