More and more people are choosing to release equity from their home in order to give themselves a cash boost as they near retirement, but what happens if you decide to move?
Can I sell my house if I have an equity release plan?
Many standard equity release plans allow you to move your mortgage to a new property if you decide to sell your house, provided the lender approves the property first. If you want to move to a house that is significantly cheaper than your existing property, the lender might decide it is not willing to lend as much against it. In this situation, you may have to repay some of the mortgage early, potentially triggering early repayment charges.
Steve Wilkie, managing director at equity-release specialist Responsible Life, said:
“The new property must meet current lending criteria. In reality, current lending criteria are quite flexible and would be explained to a customer at time of purchase. If you have any plans to move to an unusual property in later life, flag this to your adviser who will advise accordingly.”
There are some properties that equity release providers might not be able to accept if they can’t be easily sold in the open market when your plan finishes, for example retirement homes.
What type of equity release plan should I look for?
Equity release plans, such as the lifetime mortgage, enable you to release some of your home's value. Interest on the sum you have released rolls up over time and is usually repaid – along with the sum itself – when you pass away or enter long-term residential care.
Homeowners unlocked £3.92bn worth of house wealth in 2019 alone, according to industry trade body the Equity Release Council (ERC).
Products are becoming increasingly flexible, with a range of new features on the market. Some of the most popular include the ability to receive a regular monthly income from your property wealth, to make regular interest repayments during the life of the loan, and to allow downsizing so you can move in the future – penalty free – if you wish.
If there’s a chance you might want to downsize in the future and you’ve yet to release equity, consider a type of plan that offers downsizing protection.
This option allows you to downsize and repay your equity-release plan in full – either voluntarily or if the new property does not meet your lender’s criteria – without incurring any early repayment charges. Some 45 per cent of equity-release products now offer downsizing protection, which can typically be used after the first five years of the loan.
“The downsizing protection features allow customers to downsize at a time that suits them, rather than being forced to by financial needs,” Mr Wilkie adds.
“We’ve seen customers come to us fully expecting to have to downsize, but are then pleasantly surprised to learn they can use some of their property wealth now and downsize for the rest later when they actually want to. Often this is led by the wider family’s needs. Having the room to accommodate a growing family for visits is helpful before ‘rightsizing’ later in retirement. With a lifetime mortgage, you’re more in control of the money you have in your property."
Get professional advice
Always seek professional financial advice, as releasing equity can affect your entitlement to means-tested benefits and will reduce the value of your estate.
In addition, you should only ever deal with lenders approved by the Equity Release Council, as they must provide certain customer safeguards. One such safeguard is the no-negative-equity guarantee, which means you will never owe more than your property is worth.
The Telegraph Equity Release Service offers no-obligation consultations with a local equity release advice expert from Responsible Life. They offer tailored advice based on your personal circumstances and can discuss whether equity release is right for you. Our advisers will only ever recommend products that meet the highest standards of customer protection.
If you would like more information on equity release, call 0800 0291087 to request a guide or to arrange your free consultation. Phone lines are open between 9am–8pm Monday to Friday and 9am–5pm on Saturday.
- Find out how much tax-free cash you could unlock with the Telegraph’s free equity release calculator.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.
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Information correct at date of publication.