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HouseWorth
© GetAgent Limited 2024
  1. Blog
  2. Can I sell my house if I have equity release?
14 March 2023

Can I sell my house if I have equity release?

Sam Edwards
Senior Writer & Researcher
Woman shaking hands with an elderly couple across a table.

Table of contents

  1. 1. What is equity release and how does it work?
  2. 2. Selling a property with equity release
  3. 3. Do I still own my house with equity release?
  4. 4. Are there any downsides to equity release schemes?
  5. 5. Consider these FIVE factors before you sell with an equity release
  6. 6. Alternatives to equity release schemes
  7. 7. How do I find out how much equity I have built in my home?
  8. 8. Summary: No problem - but some things to keep in mind!

Equity release is a popular financial solution for many homeowners in the UK, particularly those who are looking for some extra cash in their retirement. But what happens if you have a home with equity release and want to sell it? Are there any consequences to having this type of mortgage plan?

What is equity release and how does it work?

An equity release plan is a type of product that allows homeowners to access the value of their property without having to sell it.

Types of equity release product

There are two main types of equity release schemes - lifetime mortgages and home reversion plans.

  1. Lifetime mortgages: The most popular form of equity release plan. Lifetime mortgages allow you to borrow money against the value of your property while still retaining ownership. Interest is charged on the loan, which is usually repaid when the property is sold or the homeowner passes away.
  2. Home reversion schemes: These schemes involve selling a portion of your property to an equity release provider in exchange for a lump sum or regular payments. The homeowner retains the right to live in the property rent-free, but when the property is sold, the provider receives their share of the sale proceeds.

How equity release works

Equity release plans work by allowing homeowners to access the value of their property without having to sell it. There are different payment options available, such as taking a lump sum or receiving regular payments.

How does interest work?

Interest is charged on the loan, which can either be paid or added to the outstanding balance. Repayment options vary depending on the type of equity release you choose.

Equity release council (ERC)

Established in 1991, the Equity Release Councilis responsible for promoting safe and fair equity release products for older homeowners. It sets standards and guidelines for providers and advisers to ensure they operate in a professional and ethical manner.

Members of the Equity Release Council are bound by a strict code of conduct that includes consumer protections - such as a ‘no negative equity guarantee’ - which ensures that homeowners never owe more than the value of their property when it is sold after releasing equity.

The council also provides information and guidance to homeowners with an existing equity release plan, or who are considering equity release, as well as to advisers and providers in the sector.

Eligibility for equity release

To be eligible for an equity release plan, you must meet certain requirements. These typically include:

  1. Age requirements: Most providers require you to be at least 55 years old, although some may require you to be older.
  2. Property requirements: Your property must meet certain criteria, such as being of a certain value and in good condition.
  3. Health requirements: Some equity release providers may require you to undergo a health check to determine your life expectancy, which can affect the amount you can borrow.

Selling a property with equity release

If you have an equity release plan and want to sell your home, there are several factors to consider. While it's possible to sell a house with such a plan, it can come with some restrictions and potential costs.

Can I sell my house if I have an equity release plan?

Yes, you can sell your house if you have an equity release plan - but you'll need to repay the loan using the proceeds from your sale before you receive any money yourself. Some equity release plans also have Early Repayment Charges, so you should double-check with your lender to make sure you aren't violating the terms of your agreement.

Can an equity release affect your property sale?

Selling a property with equity release can affect the sale process in several ways. For example, if you have a lifetime mortgage, the outstanding loan will need to be repaid when the property is sold. This can impact the amount of money you receive from the sale, as the loan and interest will need to be paid off first.

Potential restrictions on selling with equity release

There are several potential restrictions when it comes to selling a property with equity release. These can include:

  1. Early Repayment Charges: If you have a lifetime mortgage, you may face early early repayment fees if you sell your property before the end of the mortgage term. These charges can be significant and can impact the amount of money you receive from the sale. (For more information about how to avoid Early Repayment Charges with lifetime mortgages, please see Downsizing Protection below)
  2. Negative equity: If your property has diminished in value since you took out the equity release loan, you may find yourself in negative equity. This means that the outstanding loan is greater than the value of the property, which can impact your ability to sell.
  3. Restrictions on who can purchase the property: Some equity release providers may have restrictions on who can purchase the property, such as requiring the buyer to be over a certain age.

Downsizing Protection

If you want to avoid Early Repayment Charges, but also downsize from your current home, we recommend looking for lifetime mortgage lenders that offer Downsizing Protection. This clause allows homeowners to transfer their equity release plan to a new home without incurring these charges - as long as your new home meets certain criteria.

The criteria for downsizing protection may vary depending on the equity release provider, but typical requirements include:

  • Your new house must be of a certain minimum value.
  • It must be your new primary residence.
  • Your equity release provider must deem it acceptable - typically, under specific size constraints.

There can be some downsides to using downsizing protection however. For example, there may still be fees or charges associated with transferring the equity release plan to a new property, and the overall cost of the plan may be higher if the downsizing protection feature is included.

Please note: Not all equity release providers offer downsizing protection, so it's important to check the terms and conditions of any lifetime mortgage you're considering.

Your options for selling with an equity release mortgage

Despite the potential restrictions, there are still options for selling a property with equity release. These include:

  1. Selling the property and using the equity release funds to repay the loan: This is the most common option for selling a property with equity release. The sale proceeds are used to repay the outstanding loan, and any remaining funds are given to the homeowner.
  2. Selling a percentage of the property to repay the loan: If you don't want to sell the entire property, you can sell a percentage of it to repay the equity release loan. This can be a good option if you want to retain some ownership of the property.
  3. Transferring the equity release loan to a new property: If you want to move to a new property, it may be possible to transfer the equity release loan to the new property. However, this will depend on the terms of your equity release plan and the eligibility requirements of the new property.

Do I still own my house with equity release?

It depends what type of equity release you go with!

With a lifetime mortgage, you take out a loan against the value of your home, and the loan and interest are repaid when your house is sold after your death or when you move into long-term care. However, you still own your home and can continue living in it as long as you wish. It continues to remain an asset that can be passed on to your heirs, subject to the terms of your mortgage.

With a home reversion scheme on the other hand, you sell a portion of your house to a provider in exchange for a lump sum or regular payments. This means that the provider becomes the owner of that portion of your house and has the right to sell it when you die or move into long-term care. In other words, you no longer own 100% of your home, but you still have a right to live in it for the rest of your life.

Are there any downsides to equity release schemes?

Unfortunately there are caveats to equity release schemes that you should be made aware of.

They can be expensive

With lifetime mortgages, interest rates can be higher than those of traditional mortgages. And, like any mortgage, their interest accrues over time, which means that the amount you owe can grow significantly. With home reversion schemes, the lump sum you receive is usually less than the full market value of the portion of your home you wish to exchange for equity.

They can affect your eligibility for means-tested benefits

If you receive means-tested benefits, like Pension Credit or Council Tax Reduction, the income or assets you receive from an equity release scheme could affect your eligibility for these benefits.

There are implications for inheritance

With both lifetime mortgages and home reversion schemes, the value of your estate could be reduced - which means there may be less to pass on to your heirs.

They're usually long-term commitments

If you want to repay your lifetime mortgage early, you may need to pay an early repayment charge, which can be significant. With home reversion schemes, it may be difficult to transfer ownership to someone else,

It goes without saying there are plenty of downsides to equity release schemes. Make sure you're making the right decision by consulting an independent financial advisor to understand how an equity release scheme could affect your benefits.

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Consider these FIVE factors before you sell with an equity release

Before you decide to sell your property with equity release, there are several factors to consider. These include:

  1. Remaining Equity:

The amount of equity you have remaining in your property will impact how much money you receive from the sale. If you have used a significant portion of your equity through the equity release loan, you may not receive as much money from the sale as you would like.

  1. Potential costs:

Selling a property with equity release can come with several costs, including repayment of the equity release loan and potential Early Repayment Charges. It's important to understand these costs and factor them into your decision-making process.

  1. Future housing needs:

Consider your future housing needs before selling your property with equity release. If you plan to downsize or move to a different area, you may want to explore other options for accessing funds, such as downsizing or using other forms of equity release.

  1. Inheritance:

Selling a property with equity release can impact the amount of inheritance you are able to leave behind for your beneficiaries. It's important to consider this impact and weigh it against your own financial needs and priorities.

  1. Timing:

Timing is also an important factor to consider when selling a property with equity release. If you are still within the early years of your equity release plan, you may face significant Early Repayment Charges. On the other hand, waiting too long to sell could result in a decrease in the property's value, which could impact the amount of money you receive from the sale.

Alternatives to equity release schemes

Equity release schemes aren't cut out for everyone. If you're interested in releasing some equity from your home, there are some alternatives you might want to consider:

Downsizing

If you're ready to move to a smaller property, downsizing might be a better option. By selling your current home and buying a smaller one, you can release the equity tied up in your home - without taking on debt, and helping reduce your living costs and maintenance expenses.

If you want to find out how much your home is worth, try out GetAgent's free Online Valuation Tool - it takes only a few moments to provide a well-rounded valuation.

While online tools can be accurate, there's nothing more precise than having a local expert visit and value your home. GetAgent's free Estate Agent Comparison Tool has helped over 600,000 homeowners find the right agent to value their home.

Using hard, reliable data from the Land Registry, the tool pin-points the best performing agents in your local area. Give it a whirl today and request a free, no obligation valuation from one of your area's top-performing estate agents!

Remortgaging

If you're not in the market to sell, remortgaging is another viable option. If you have a traditional mortgage on your home, you might be able to remortgage and release some equity in the process.

Remortgaging can be considered a more affordable option than an equity release scheme, as interest rates on traditional mortgages tend to be lower than those of lifetime mortgages.

How do I find out how much equity I have built in my home?

To find out how much equity you can access, you need to work out how much of your mortgage is left outstanding - and then subtract it from its appraised value.

There are some online tools you can use too. For example, GetAgent's free online dashboard - My Property Tracker - contains a free equity release calculator.

Summary: No problem - but some things to keep in mind!

To surmise, yes, you can sell your house if you have an equity release plan - but there are some things you should keep in mind:

  1. Double-check that you're within the bounds of your contractual agreement and that ERCs aren't chargeable - if they are, work out if they're worth paying or not.
  2. Make sure you have enough proceeds from your sale to pay back the outstanding loan.
  3. Check how much equity you still have in your property before you sell - if you've released funds a few times before, you may get substantially less from your property sale.

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