The equity in your home is the difference between its market value and any loan secured on it.
Equity release is a way of accessing some of the cash tied up in the value of your house by taking out a loan secured on it, and continuing to live in it. This loan is usually repaid when the house is sold, you move out, or you die.
The fact that you have equity release does not mean you are forever bound to your home.
Equity release options
- Home Reversion Scheme: In this case, the lender buys a share of your house and waits for its value to increase. But because the lender won’t be paid until your home is sold, the amount the company offers to you is usually below the actual value of the share.
- Lifetime Mortgage: In this case, the loan given comes with a fixed interest, but the loan does not have to be paid in regular instalments. This lifetime mortgage can be of two types:
- Interest-only lifetime mortgage: in this case, you can choose to repay the interest each month and the actual loan when the home is sold.
- Rolled-up lifetime mortgage: in this case, your interest is rolled up instead of being paid monthly. Instead, along with the actual loan, the rolled-up interest is paid when your house is sold.
Can I Sell My House If I Have Equity Release?
Yes, you can. You may be selling your house for a number of different reasons. One could be because you are moving to a new home. The other could be that you are moving to a retirement home, into rented accommodation, or to live with a family member and you need to sell your house.
If you are selling your house because you are moving to another, the new home must meet current lending criteria, and the lender must approve of it. If you are moving to a bigger or more expensive house (although this is not usually the case), the lender should have little to no problem with this.
However, if you are moving to a smaller or less expensive house, the lender might decide not to lend as much money against it. In such an instance, you would have to repay some of the loan fees early. An action that might incur early repayment charges.
Lending criteria are usually flexible and in every case should be explained to you at the point of the loan being agreed. If you know, or suspect, you will be moving house later on in life, tell your adviser this at the negotiation point, and they can advise you accordingly.
If you opted for a home reversion scheme when taking out the loan and you subsequently move to a cheaper home, the lender might require its share of the new house to be increased. This increase will be so that it continues to hold the same current value as it held in your former residence.
For instance, if you have sold 20% of your previous house’s value to a lender and it costs £500,000, and then you decided to move to a house that costs £300,000, the lender will require a 33.33% stake in your new home to maintain the £100,000 value of its share.
Moving to a retirement or care home
If you are moving to a retirement home, into rental accommodation or to live with family, you will be selling your home without requiring another mortgage to be arranged on your new home. That means the loan cannot be transferred to a new property. The solicitor handling the sale of your house will repay the loans from the buyer’s purchase fee. This is why the property has to be sold for its actual value.
To get the appropriate amount, you must use an estate agent who is familiar with your neighbourhood, the prices paid for properties in this neighbourhood, and the type of home you are selling. The estate agent will then help determine a fair market value for your property.
Once this is done, alongside your agent, review offers from potential buyers and accept the offer that will yield the most favourable financial outcome. Attend the closing to sign the transfer documents and release your money.
Your solicitor will repay the loan and pay any interests, agent’s commission and other fees from the sale money. Depending on your house’s sales price, the amount owed the lender and the closing expenses, you will either owe additional money, break even or make a profit after the sale is done.
The fact that you have equity release does not mean you are forever bound to your home. Yes, you can sell it but remember that a proportion of the sale money will be the lenders’.