Can You Sell a House With an Existing Equity Release Plan in 2024?

Learn About the Advantages and Drawbacks of Selling a House With an Existing Equity Release Plan. Discover How to Maximise Your Asset.
  • Last Updated: 30 Jan 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • If you decide to sell your house after having taken out an equity release, the amount you owe must be paid off using the sale's earnings.
  • This means using the sale proceeds to clear the equity release debt, with any surplus funds being yours.
  • Early repayment charges, which are often a proportion of the equity released, may apply if you sell your house while under an equity release scheme.
  • The equity release loan must be settled when you sell your house, which could impact the profit you make from the sale.
  • Prior to this, it's important to consult with your equity release provider, be aware of any early repayment fees, engage a trustworthy estate agent, and ensure the selling price is sufficient to cover the loan repayment.

Selling a house with equity release is a complex balancing act between financial strategy and property tactics, one that offers potential gains but also comes with inherent risks that require careful navigation.

Circumstances change, and you may one day want to move closer to family or downsize to a more manageable property.

Putting your home on the market can be daunting at the best of times, but now you may also need to consider an equity release loan.

We are here to help!

In This Article, You Will Discover:

    This article explains the process and implications of selling a house with equity release.

    The Every Investor team will guide you through potential challenges and opportunities, providing you with the essential knowledge needed to make an informed decision.

    This article was carefully crafted by our team of writers and reviewed by our team of financial experts for accuracy and relevancy.

    Therefore:

    What Is Equity Release?

    Equity release offers a way for individuals over 55 to unlock the financial value of their home.

    For instance, in an equity release example, a homeowner might choose to access a portion of their property's value without having to move out or sell the property.

    It's a financial tool that can provide either a single lump sum or smaller, regular amounts.

    Importantly, the loan, plus interest, is repaid from your estate when you pass away or move into long-term care.

    Can I Sell My Home After Taking Out an Equity Release in the UK?

    Yes, you can sell your home after taking out an equity release in the UK.

    However, it's important to understand that this action will likely trigger a requirement to repay the loan.

    Equity release schemes are designed to last for the entirety of your life or until you move into long-term care, so selling your home will generally be considered a significant event that requires repayment.

    There may be exceptions to this rule depending on your specific equity release agreement.

    Some plans may have a 'portability' clause that allows you to move the debt to a new property.

    Yet, it's crucial to consult with a financial advisor or the equity release provider before making any decisions.

    Always remember, the goal of equity release is to provide a steady income stream in your later years, make sure your actions align with this objective.

    Why You Might Sell Your Home With Equity Release

    You may sell your home with equity release if you would like to downsize, if you would like to move to be near family, or if you would simply like a change of scenery.

    Downsizing can be a sensible move for many retirees, as having a smaller home to maintain could give you more time to indulge in hobbies or spend with family, and more money to do those things with!

    As you get older, a move to the seaside and away from the city could also be very beneficial, as could finding a place closer to your family. 

    Speak to an equity release broker or advisor if you are considering selling with an existing equity release plan.

    How Selling a Home With Equity Release Works

    Selling a home with equity release works in a relatively familiar manner, though it requires careful planning. 

    Typically, when you decide to sell, the equity release provider must be repaid. 

    This repayment usually comes directly from the sale proceeds, and the amount repaid includes the original loan sum and the accrued interest. 

    As long as your equity release plan carries a No Negative Equity Guarantee, the repayment cannot exceed the sale value of your home, even if the debt has grown larger. 

    After the loan is repaid, any remaining sale proceeds are yours to keep. 

    Could I Take My Equity Release Loan With Me?

    You could take your equity release loan with you when moving home, depending on your loan contract and whether or not your provider finds your new home suitable. 

    The option to carry your equity release loan to your new home can be exercised through a process often referred to as 'porting'.

    Consider:

    • Your new property must meet the lender's criteria and be acceptable as continued security for the loan.1 Criteria may include the property's location, condition, and type.
    • If your new property is worth less than your current one, the lender may require you to repay a portion of the loan to reduce their risk.2 This is usually done from the sale proceeds of your old home.

    Keep in mind that professional guidance is essential when thinking about porting an equity release loan to ensure you fully understand the implications and costs involved.

    Could My Equity Release Provider Refuse to Port My Equity Release Plan?

    Equity release mortgage providers in the UK could refuse to port your equity release plan to a new property for a variety of reasons. 

    Providers’ most common objections include:

    • Property type: Your provider may not allow you to port your plan to a property that is not a permanent residence, such as a holiday home or rental property.3
    • Construction type: Your lender may have restrictions on the materials properties may be built from.4
    • Property location: Homes in certain locations, like Northern Ireland, the Scottish Islands, the Channel Islands, the Scilly Isles, and the Isle of Man, are often ineligible for equity release.5

    Are There Alternatives to Porting My Equity Release Plan?

    Yes, there are alternatives to porting your equity release plan. 

    One such option will be available to you if your lifetime mortgage includes downsizing protection, a feature offered by some providers allowing you to repay your plan in full without any early repayment charges if your are moving to a smaller property not acceptable as security for the loan.

    Another alternative is to repay your equity release loan when selling your home, which may suit if you have had a change of circumstances or if the loan has become less suitable for your needs.

    What Is Downsizing Protection and Why Is It Important?

    Downsizing protection is a feature offered as part of some equity release lifetime mortgage plans that allows homeowners to pay off their loan without incurring early repayment charges, should they decide to move to a smaller, less valuable property. 

    This feature is crucial because it provides homeowners with flexibility, ensuring they are not financially penalised if their circumstances change and they suddenly need to move into a more manageable property or reduce living costs.

    It is important to check whether your equity release plan includes downsizing protection and what the terms and conditions are.

    What Are the Advantages of Selling a House With Equity Release?

    The benefits of selling a house with equity release include being able to downsize and gaining the mobility needed to move closer to family.

    Benefits of selling your house with equity release include:

    • Moving to a more affordable property, thereby freeing up some cash to use in retirement.
    • Moving to a property that caters to your changing needs as you get older.
    • Moving to the retirement location you prefer, whether that means being closer to family or moving to a more scenic part of the country.

    Remember, selling a house entails paying moving costs, solicitors’ fees, and stamp duty, and moving can be very stressful.

    What Are the Risks of Selling a House With Equity Release?

    The risks of selling a house with equity release include the potential decrease in equity if house prices have fallen, which could result in receiving less money for paying off your lifetime mortgage.

    Risks to consider:

    • The existing equity release plan and other fees will have to be paid before you receive any of the proceeds from the sale of your house. Repaying the equity release loan from the sale proceeds reduces the amount available for the homeowner or their estate. 
    • If the property value has not increased significantly, the accumulated loan and interest could consume a substantial portion of the sale price. 
    • You may face early repayment charges if you repay the loan before the end of the term.

    Depending on your personal circumstances, the risks may outweigh the benefits, so discuss your options with a qualified financial advisor before making any decisions.

    A Step-by-Step Guide for Selling a House With Equity Release

    A step-by-step guide for selling a house with equity release can help you avoid the pitfalls associated with this process.

    What to do:

    • Consult with a financial advisor to explore your options and understand the implications.
    • Inform your equity release provider of your intention to sell. They will provide a settlement figure, indicating the total amount to be repaid. 
    • Use an estate agent to sell your home. 
    • Once your home is sold, the solicitor will usually handle the repayment of the equity release loan from the sale proceeds. Any remaining funds after the repayment will be yours.

    By following these steps, you can sell your property with an existing equity release plan and ensure that the loan is repaid correctly. 

    What Are the Costs Involved in Selling a House With Equity Release?

    The costs involved in selling a house with equity release include the repayment of the original loan amount, plus any accrued interest. 

    Other costs to consider:

    • Early repayment charges (if you do not have Downsizing Protection). If you are still within the early repayment period of your equity release plan, these charges can be significant and may be a percentage of the outstanding loan balance or a fixed fee.
    • Redemption fees, a percentage of the outstanding loan and fees that cover the administrative costs of closing the plan. 
    • Estate agent fees, which may include valuation fees. These fees are typically calculated as a percentage of the sale price of the property and are usually charged at between 0.9% and 3.6%, with an average of 1.42% in 2023.6
    • Solicitor's fees, which usually depend on their hourly rate and the complexity of the transaction.
    • Stamp duty on your new property.

    Speak to a financial advisor to discuss the costs you may need to consider.

    Common Questions

    Can I Sell My House After I've Taken an Equity Release?

    What Happens When I Sell My House With an Equity Release?

    Are There Penalties for Selling a House With an Equity Release?

    How Does Selling My House Affect My Equity Release?

    What Steps Should I Follow When Selling My House With an Equity Release?

    What Type of Equity Release Plan Should You Look For If You May Want to Sell Your Home in the Future?

    Can I Always Sell My House If I Have Equity Release?

    Can I Move to a New House if I Have Equity Release?

    Should I Transfer My Equity Release to Another Property?

    Why Would I Not Be Able to Transfer My Equity Release to a New Property?

    What Happens to My Equity Release if I Do Not Transfer It to Another Property?

    Do I Still Own My Home With Equity Release?

    Is Selling a House With Equity Release Right for You?

    Can I Rent Out My House Instead of Selling If I Have Taken Out Equity Release on It?

    Conclusion

    In conclusion, selling a house with equity release offers potential financial benefits but comes with its own set of complexities and risks. 

    That's why for those over 65, you first need to answer, is equity release worth considering for financial flexibility, before taking out an equity release plan.

    It is crucial to explore all available options, from porting your existing plan to seeking Downsizing Protection, to fully understand the costs and implications involved. 

    Consulting with a financial advisor is indispensable in this process. 

    Ultimately, selling a house with equity release can provide substantial financial flexibility when navigated thoughtfully and with the right professional guidance.

    The features mentioned and the amounts raised, are subject to the lender’s criteria, terms and conditions. These may take into account the age, health and lifestyle factors in order to provide an enhanced amount. To understand the features and risks, ask for a personalised illustration.

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