Can You Sell Your House If You Have Equity Release?

Selling your home with an active equity release plan can seem daunting, but it’s possible with the right approach. Equity release, encompassing both lifetime mortgages and home reversion plans, allows homeowners to access their property’s value without moving out.

However, if selling becomes necessary or desirable, it is crucial to understand the nuances of your equity release agreement—such as early repayment charges, lender permissions, and the flexibility of moving your mortgage.

This article dives into the selling process under these conditions, highlighting solutions and considerations to guide you smoothly through the transaction.

Releasing equity

Equity release plans or lifetime mortgages enable you to release some of your home’s value as a tax-free loan that doesn’t usually need to be repaid until you die or move into long-term care.

Once you have an equity release plan in place, you will likely need your lender’s permission if you decide to sell the property; this is if you choose to move within the term of your plan.

Most standard plans will allow you to move your mortgage to a new property without too much added hassle.

It is essential to remember that if you intend to get a mortgage on a house far less expensive than your existing property, the lender may be less inclined to lend against it.

In this case, you may need to repay some of the mortgage early, which could result in early repayment charges.

Early repayment charges

If you choose to sell your home while you have an equity release plan in place, you may have to pay early repayment charges to finish your mortgage agreement early.

Other scenarios that result in early repayment charges include if you make any overpayments above the limit of your mortgage deal, transfer to another mortgage deal, or onto a standard variable rate.

However, there is the possibility of avoiding the early repayment charge by mortgage porting.

In this scenario, you would take your current deal with you to your new property, although you would need to confirm with your lender whether they will consider this.

Flexibility

Within this area of the market, products are becoming increasingly flexible, with features such as receiving monthly income from your property wealth now available.

This, in turn, allows you to make interest payments throughout the loan and allows for future downsizing.

The Equity Release Council has pushed through changes to increase the flexibility of equity release products amongst lenders and assist the market in becoming fully regulated.

Downsize protection

If you’re considering downsizing in the future, downsize protection will allow you to repay your equity release plan in full.

With downsize protection, you could move home and repay the mortgage in full without penalties. Without this, a lender may deem your new property unacceptable, such as a high-rise flat or log cabin.

Fewer than half of equity release plans include downsizing protection, and the ones that do often include a higher rate.

However, if you intend to move property within the agreed term of your equity release plan, it would be wise to consider downsizing protection, which an equity release broker can advise on.

Legal considerations

Navigating several key legal considerations is essential when selling a home with an equity release plan to ensure the process is smooth and compliant. Begin by consulting a legal professional to review your equity release agreement, which outlines your obligations and any restrictions on selling your property.

Engaging a solicitor experienced in such transactions early on is crucial; they will guide you through assessing early repayment charges, the implications of porting your plan to a new property, and ensuring all loans secured against the property are cleared at the sale.

This includes managing the conveyancing process, which may involve additional steps to accommodate the equity release plan and ensuring compliance with all relevant property and financial regulations.

Your solicitor will play a vital role in the repayment process, using sale proceeds to clear the equity release and any other secured loans and navigating post-sale legal requirements to close out the equity release plan formally.

This comprehensive legal support ensures that potential buyers are informed about the property, that the sale adheres to legal standards, and that you are informed of the financial impact on your sale proceeds.

With expert legal guidance, selling your home with an equity release plan can be a manageable and legally sound process, allowing you to move forward with your next steps.

Checklist for selling your home

If you’re considering selling your home and you have an equity release plan in place, follow this checklist to ensure a smooth and informed process:

1. Consult Your Lender or Advisor: Begin by consulting with your equity release provider or financial advisor to understand the terms of your plan, especially concerning selling your property. They can provide crucial insights into whether your plan allows for easy transfer, repayment terms, or if any penalties apply.
2. Review Early Repayment Charges (ERCs): Check for any ERCs to repay your equity release plan early due to the sale. Understanding these charges can help you calculate the financial implications of selling and whether it’s a viable option at this time.
3. Evaluate Your Property’s Value: Have your property professionally valued to gauge how its current market value will affect your equity release plan. This step is vital for understanding how much equity you might have left after repaying the plan and if it aligns with your future housing or financial goals.
4. Consider Your Next Move: If you plan to purchase another property, consider how the proceeds from the sale will cover your next purchase. If you’re downsizing, investigate how this affects your equity release plan, mainly if your plan includes downsize protection.
5. Seek Legal and Financial Advice: Consult with legal and financial professionals specialising in equity release and property sales. They can offer advice tailored to your situation, ensuring you know all the legalities and financial implications involved.
6. Prepare Your Home for Sale: Maximizing your property’s appeal can significantly impact its selling price. Consider making any necessary repairs or cosmetic improvements to enhance its value.
7. Understand the Porting Process: If your equity release plan allows for porting (transferring your current deal to a new property), understand the criteria your new property must meet and any additional costs.
8. Communicate with Buyers: Be prepared to explain the situation to potential buyers, mainly since the sale will involve repaying your equity release plan as part of the transaction. Transparency can help avoid complications during the sale process.
9. Finalize the Repayment: Work with your solicitor and equity release provider to ensure the loan is repaid from the sale proceeds as agreed upon. Formally confirm the repayment and closure of the equity release plan.
10. Review Your Financial Situation Post-Sale: Assess your financial standing after selling your home and repaying the equity release. Consider how the sale impacts your long-term financial plans and any next steps you need to take.

Following this checklist can help navigate the complexities of selling your home with an equity release plan, ensuring you’re well-informed and prepared for each process step.