Many homeowners are choosing to release equity from their home to give themselves a cash boost as they near retirement. In fact, an Equity Release Council study released this year found that more than three in five (61%) of homeowners are interested in releasing money from their home in later life.
But many people still find themselves wondering whether this will give them the flexibility they need in later life if they later decide to move home. Here, we tell you if you can sell your house if you have taken out an equity release plan.
Can I sell my house if I have an equity release plan?
Selling your house could still be an option if you have taken out an equity release plan against the property. Many standard equity release schemes allow you to move your mortgage to a new property if you decide to sell your house, provided the new property meets the lender’s criteria.
However, if you want to move to a house that is cheaper than your existing property, you may have to repay some of the mortgage early to bring down the overall loan-to-value, potentially triggering early repayment charges.
Sophie Walsh, Head of Equity Release Advice at Royal London, says: “The new property must also meet the current lending criteria. The lending criteria would be explained to a customer at time of purchase. However, if you have any plans to move to a more 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. Speaking with an adviser about your future plans will help them to recommend a plan that is right for you.
Can I rent out my house if I have equity release on it?
If you release equity from your home, you won’t then be able to rent it out to a tenant. Renting your home out and creating a tenancy would usually require you to move out, triggering the necessary repayment of your equity release plan.
In some cases, you could rent out a room to a lodger after releasing equity, however there are specific rules and guidelines that lenders may require you to observe to prevent a lodger turning into a tenant. It is likely that you will have to seek the lender’s permission too. Speaking to an adviser about this would be the best way to answer your questions.
Buy-to-let property landlords may be able to release equity from their investment properties, but the lending options could be considerably limited. It’s best to speak with a fully qualified equity release adviser about your options before factoring anything into your plans.
What type of equity release plan should I look for?
Equity release products, such as a 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 initial amount borrowed – when you pass away or enter long-term residential care.
In the first half of 2024, homeowners in the UK have unlocked £1.082bn worth of house wealth according to industry trade body the Equity Release Council (ERC).
Lifetime mortgage products can be flexible, with a range of features available on the market. Some features that could be available include the facility to receive a regular monthly income from your property wealth (rather than receiving one lump sum), to allow downsizing so you can move in the future – penalty free – if you wish, and to ring-fence a portion of your home’s equity as a guaranteed inheritance.
Get professional advice
It’s important to 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 that are members of 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 Media Group Equity Release Service offers no-obligation consultations with an equity release advice expert from Royal London Equity Release Advisers. They offer tailored advice based on your personal circumstances and can discuss whether equity release is right for you.
During an advice consultation, they will compare a variety of products including equity release, retirement interest-only mortgages and other conventional types of borrowing. If borrowing is the right option for you, your adviser will only ever recommend products that meet the highest standards of customer protection. And, if it’s not right for you, you can rest assured that Royal London Equity Release Advisers will tell you.
Read more:
● How to calculate buying out your spouse’s share of the house
● Borrowing on a mortgage for home improvements?
The above article was created for Telegraph Media Group Financial Solutions, a member of Telegraph Media Group Limited. For more information please click here. Information correct at date of publication.
Equity release is only available to homeowners that own a property within the United Kingdom.
If you choose a mortgage with required payments during your lifetime, your home may be repossessed if you do not keep up with the payments. Borrowing with a lifetime mortgage or retirement interest-only mortgage will reduce the value of your estate. Receiving a cash lump sum may also affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home.
The Telegraph Media Group Equity Release Service is provided by Royal London Equity Release Advisers. Royal London Equity Release Advisers is a trading style of Responsible Life Limited which is registered in England & Wales. Company No. 7162252. Registered Office: Princess Court, 23 Princess Street, Plymouth, PL1 2EX. 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.
Responsible Life Limited is a wholly owned subsidiary of the Royal London Group who may benefit if you choose to take regulated mortgage advice. Being a wholly owned subsidiary of the Royal London Group does not alter Responsible Life Limited’s regulatory responsibilities.
Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690. Their adviser will talk through the setting up costs before you choose to proceed.
