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Equity release allows homeowners to access the value tied up in their property, providing a tax-free lump sum or regular payments.
While this can be a helpful way to supplement income, many later find themselves wondering whether they can sell their home.
The good news is that selling a home with equity release is possible, but there are important factors to consider before making any decisions.
Equity Release When Selling Your Home
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How Equity Release Affects Your Ability to Sell
Equity release comes in two main forms: lifetime mortgages and home reversion plans. Each affects your ability to sell in different ways.
Selling with a Lifetime Mortgage
A lifetime mortgage allows you to release equity while retaining ownership of your home. The loan, plus interest, is typically repaid when you pass away or move into long-term care.
If you decide to sell your property before then, the loan must be repaid in full, including any accrued interest.
Since lifetime mortgages are designed to last for life, the total repayment amount could be substantial, particularly if the plan has been in place for many years.
Some lenders apply early repayment charges, which could make selling more expensive. However, certain plans offer downsizing protection, allowing you to move without penalty if you meet specific conditions.
Checking the terms of your agreement is essential before deciding to sell.
Selling with a Home Reversion Plan
A home reversion plan involves selling part or all of your property to a provider in exchange for a lump sum or regular income. Since you no longer fully own the home, selling becomes more complex.
To proceed with a sale, the provider must approve the transaction. When the property is sold, they will claim their share of the proceeds based on its market value at the time.
This means the final amount you receive may be lower than expected, as a portion of the home belongs to the provider rather than you.
Can You Transfer Equity Release to a New Home?
If you’re looking to move rather than sell outright, some equity release plans allow for porting, meaning the loan can be transferred to a new property. However, this depends on the lender’s criteria.
The new property must meet the provider’s requirements, which could exclude certain types of homes, such as retirement properties, high-rise flats, or non-standard constructions.
If the new home is worth less than the original property, the lender may require a partial repayment before agreeing to the transfer.
If porting isn’t an option, the loan will need to be settled, which could mean selling the property and using the proceeds to repay the outstanding balance.
Legal and Financial Considerations
Selling a home with equity release involves financial and legal complexities.
Seeking advice from a mortgage broker can help you understand your options and assess whether selling is the best course of action.
A solicitor may also be required to review the legal aspects of the sale, particularly for those with a home reversion plan.
They can clarify how the sale proceeds will be divided and ensure all legal obligations are met.
How Selling Affects Inheritance
One of the key reasons people choose equity release is to provide financial stability while remaining in their home.
However, selling a property with an equity release plan can affect any inheritance left to beneficiaries.
For those with a lifetime mortgage, selling early could leave more equity available for inheritance, but this depends on how much interest has accumulated.
In contrast, home reversion plans reduce the portion of the property available to pass on, as part of it is already owned by the provider.
Some lenders offer inheritance protection options, allowing homeowners to safeguard a percentage of their property’s value for their family.
If inheritance is a key concern, reviewing these options before deciding to sell is important.
Alternatives to Selling
If selling seems restrictive due to early repayment charges, lender conditions, or inheritance concerns, other options may be worth considering.
Some homeowners explore partial repayments, which allow them to reduce the balance over time and minimise the impact of interest.
Others consider remortgaging to switch to a different equity release product with more flexible terms.
For those who want to move but avoid full repayment, downsizing protection could allow them to sell and relocate without penalty.
The availability of this feature depends on the lender and the terms of the original plan.
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Exploring Your Options
Selling a home with equity release requires careful planning.
Understanding your lender’s terms, reviewing early repayment conditions, and considering how the decision affects inheritance are all important steps.
Speaking to a mortgage broker can provide clarity on the best way forward.
At UK Moneyman, our mortgage advisors can explain your options, whether that involves selling, porting your plan to a new home, or exploring alternative solutions.
