Yes, selling a house with equity release is possible, whether you have a lifetime mortgage (LTM) or home reversion plan. There are many good reasons for selling your house and moving to another one. You may want to be closer to family, move somewhere special to you or even just downsize. But it’s important to remember that your provider has to agree to the move.
We’re going to explain how it can work in this article. LTMs are the most popular way of releasing equity, so we’ll focus on them.
Equity release has become an increasingly popular option for seniors looking to unlock some of the wealth tied up in their homes. With property prices rising over the years, many retirees find themselves living in a home that is now too big for their needs. This leads some to consider downsizing to a smaller property.
But can you downsize if you have an equity release loan or plan? This is a common question many homeowners have when weighing up their options. In this article, I’ll explain how downsizing works with equity release, the effect it can have, and what your choices are
What is Equity Release?
Before looking at downsizing, let’s recap what equity release involves. Equity release allows homeowners aged 55 plus to access some of the equity (the value tied up in their home) as a tax-free lump sum.
There are two main types of equity release product:
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Lifetime mortgages – This is the most popular type of plan. It works similarly to a normal mortgage but without making any monthly repayments. Instead, the interest rolls up and the loan plus accrued interest is repaid when you pass away or move into long-term care.
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Home reversion – You sell all or part of your home to a reversion company in return for a lump sum, You can remain living there rent-free until you pass away or move into care
Equity release reduces the value of your estate and inheritance you can leave, as the money borrowed comes out of your home’s equity.
Can You Downsize After Taking Equity Release?
The good news is yes, it is possible to move to a smaller home if you have equity release in place. However, there are a few things to consider.
Most lifetime mortgage providers who follow Equity Release Council rules allow you to transfer your plan to another suitable property. This means you can “port” your equity release when downsizing without incurring early repayment charges.
To do this, your new property must meet your lender’s criteria. For instance, it may need to fall within a certain value range and not be leasehold. If you move to a lower value home, you may need to repay some of your equity release loan from the proceeds.
Home reversion plans can also be moved but under more limited circumstances. You would need to check with your reversion provider.
Effects of Downsizing to a Lower Value Property
As mentioned, if you downsize to a cheaper property, you may have to pay back some of your outstanding equity release loan. For example, if your current home is worth £500,000 and you move to one worth £300,000, you might have to repay £100,000.
This is because lenders base how much you can borrow on your property’s value. Moving to a lower value home means you have “over-borrowed” relative to the new property’s worth.
You may also face valuation and legal fees to port your equity release when downsizing. Check these costs before committing to move.
Effects of Moving to a More Expensive Property
Of course, not everyone downsizes to a cheaper home. Many newer retirement properties can be more expensive due to high demand.
If you move to a higher value property with equity release, you may be able to unlock extra funds from the uplift in value. This could help cover any shortfall in funds needed to purchase the new home.
However, borrowing more will reduce your remaining equity further and the eventual inheritance for your loved ones. Make sure to think carefully before releasing more equity when moving upmarket.
Repaying Equity Release Early When Downsizing
Rather than porting your equity release plan when downsizing, you may choose to repay the loan completely. This cuts all ties with your lender and releases your new home from the charge.
Be aware repaying equity release early can incur early repayment charges, unless:
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You’ve had your plan for 5+ years and have downsizing protection.
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You repay the loan during the fixed early repayment charge period.
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You qualify for compassionate repayment charges (e.g. after death of a partner).
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Your plan has expired and has no early repayment charges.
Before downsizing and looking to repay your equity release, always check what penalties you may face. Some plans have charges running for over two decades.
Your Choices When Downsizing with Equity Release
You have three main options if downsizing your property when you have existing equity release:
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Port your plan – Move your lifetime mortgage or home reversion plan to your new property. You avoid repayment penalties but may unlock less/more equity depending on property values.
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Repay loan in full – Pay off your equity release loan completely when you move. Be aware you may face early repayment charges.
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Take a new plan – Release equity from your new home via a completely new lifetime mortgage plan and use funds to repay the old loan.
A professional equity release adviser can talk through your individual options, outlining the pros and cons of each and ensuring you avoid unnecessary costs.
Considerations Before Downsizing with Equity Release
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Check if your lender will allow you to port your plan and the criteria your new property must meet. Not all providers offer this flexibility.
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Be aware you may need to repay some of your equity release loan if moving to a cheaper property. Factor this into budgets.
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Think about whether you may need to borrow more equity from your new home. Consider the long-term impact on your remaining equity.
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Don’t overlook early repayment charges if looking to repay your loan when downsizing. Make sure to budget for any fees.
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Seek advice from a qualified equity release adviser. They can ensure you make the right choice for your situation and avoid expensive mistakes.
While downsizing with equity release in place requires careful planning, for most it remains a feasible option. The key is picking products offering flexibility, understanding the implications, and getting guidance from an expert. This ensures you can move to a property better suited to your needs in retirement, without complications or surprises.
What should I do next?
If you’ve already released equity from your home and want to move to a new one, we’d recommend:
- Checking in with your provider – they’ll need to sign off on your move, so you should involve them and be aware of their needs and processes right from the start
- Talking to a financial adviser – ideally get in touch with the one that helped you set up your current equity release product. If you need a new one, find one on Unbiased
- Use our Equity Release Calculator to see how much money you could release from a possible new home – but only finalise your plans once you’ve talked to your provider
If you’re still learning about equity release and making sure you’ve answered all your questions in advance, the Unbiased website and our Equity Release Calculator should be helpful.
It depends on the kind of equity release you go for. Lifetime mortgages are loans secured against your home, so if you take one out you still own it. But with home reversion you sell some or all of your home to your provider. Even though you still live in it, you no longer own it yourself.
Equity release drawbacks can include interest on your loan building up quickly, having less to leave to your loved ones and the costs associated with setting up your product. For more information, take a look at our Is equity release a good idea for you? article.
You can usually either take it with you to your new property (known as porting it), or pay it off and take out a new plan at your new place. You might have to pay an early repayment charge, valuation and arrangement fees, and you will have to cover all the normal costs that come with a move. Our equity release experts
Head of Product, Home Finance
As LGHF’s Head of Product, David’s responsible for bringing new products to market and making sure that our existing products stay marketplace relevant. He leads a team of four product, customer outcome and proposition managers.
Senior Product Manager, Home Finance
Luana works in LGHF’s New Product Development team. She’s the product owner of our Payment Term Lifetime Mortgage (PTLM), and also works on our Lifetime (LTM) and Retirement Interest Only (RIO) Mortgages.
How do I transfer equity release to another property?
You have two choices:
- Repay your current loan and take out a new one on your new home
- You’ll have to pay off any interest and probably an early repayment charge (ERC)
- Your new loan will probably have a different interest rate
- Transfer your existing loan to your new home – this is usually called porting it
- Because it’s the same loan, your interest rate won’t change
- If your new home’s cheaper, you may have to pay some of your loan back
- If it’s more expensive, you might be able to release extra money to pay for it
With both options you’ll probably have to pay valuation and arrangement fees. And as with any house move, there will also be solicitor and conveyancer fees, stamp duty, and other costs.
Whether you’re repaying or porting your loan, you should touch base with your provider as soon as possible. You won’t be able to buy somewhere new until you’ve agreed your equity release next steps with them, and it will have to meet their lending criteria.
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FAQ
What is the bad side of equity release?
Disadvantages. Equity release reduces the value of your estate and the amount that will go to the people named as beneficiaries in your will. Your estate is everything you own, including money, property, possessions and investments. With a home reversion plan, the reversion company owns all or a part-share of your home …
Can you sell your home if you take out a home equity loan?
Yes, you can sell your home even if you have a home equity loan. However, you’ll need to fully repay both your home equity loan and the remaining balance on your primary mortgage. Many homeowners use profits from the sale of the house unless they have cash to settle it beforehand.
What is the catch of equity release?
Our eligibility calculator is FREE and easy to use. Simply complete the form below. Equity release plans provide you with a cash lump sum or regular income. The “catch” is that the money released will need to be repaid when you pass away or move into long term care.
What are the rules for equity release?
Equity release is an agreement that lets you access money from this equity without having to leave your home. You usually need to be at least 55 years old. You may be able to take the money that you release as a lump sum or regular smaller payments, or both.