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Read Full Bio >We are regularly asked the question “can I sell my home after equity release?”.
The answer is yes! If you’ve previously had equity release, selling your home is still completely possible. However, it’s important to understand how equity release is likely to affect your sale and why.
In this guide, we answer a number of questions on the subjects of equity release and selling a house, including:
- “What is equity release?”
- “Why equity release?”
- “Who is equity release good for?”
- “Which equity release is best?”
- “Can I sell my house if I have a home equity loan?”
- “What home equity release problems might arise when selling my home?”
What is Equity in Property?
If you bought your property using a mortgage, the gradual repayments you make will help you to build “equity” in that property.
This means that the percentage of the home that you own outright will increase with every payment you make, while the portion owned by the lender will gradually diminish until you have “paid off” the loan in its entirety.
If you own your home without a mortgage, you will have 100% equity in the property.
What is Equity Release?
Equity release is a method of accessing some of the equity you have in your property. Eligible homeowners can arrange to receive this as a lump sum without having to sell the home.
The amount received through equity release is tax free.
How Release of Equity Works
Property owners are usually only able to access equity release over the age of 55. There are two main methods that are employed, which are:
- Lifetime mortgage
- Home reversion
Lifetime Mortgage
This is by far the more popular of the two options. Lifetime mortgages are a form of loan that is similar to a regular mortgage, but without a fixed term. The owner of the property borrows an amount against the value of their home, and the loan runs continuously for the rest of their life.
If you take out a lifetime mortgage, you will retain full ownership of the property and won’t usually be required to make repayments.
There are some products of this kind that permit the homeowner to make ongoing payments in order to “top up” their balance. Usually, however, the loan is only repaid when the home is eventually sold.
You will be required to pay interest – and compound interest – on this loan.
Home Reversion
A home reversion is a far less common way of arranging equity release. In this setup, the owner of the property sells off part of the home for below market value to a relevant provider. The stake in the property that is sold to the provider will usually fall between 20% and 60%.
As part of a home reversion, the provider and the homeowner will pre-agree a period over which the plan will take place. At the end of the term, the property will be sold. The provider and the homeowner will each take an amount from the proceeds of the sale that matches the stake held by each.
Why Equity Release?
Most people who opt for equity release do so because they require a large lump sum of cash in the near future.
They may need this amount for a number of reasons, be it in order to undertake home improvements, to pay for medical or longterm care, to repay debts, to supplement their existing income, to buy additional property or to provide support for friends or family members.
Who is Equity Release Good For?
There are specific standards that must be met in order to be eligible for equity release. According to current lending criteria, any homeowner applying for a scheme of this kind should be:
- A UK resident
- The owner of a property worth £70,000 or over
- Aged 55 or over in the case of a lifetime mortgage. Applicants are often required to be 65 or over for a home reversion – though this depends on the provider
- Planning to release at least £10,000 worth of equity from their home
- Either mortgage-free or able to pay off their mortgage in full on completion of a sale
Which Equity Release is Best?
As we’ve mentioned, a lifetime mortgage is by far the most popular option when it comes to equity release. However, some homeowners may find home reversion more practical for their requirements.
The interest charged on a lifetime mortgage will cause the borrower’s debt to rise over time, and there is the risk of negative equity with some providers – though many offer a guarantee that protects the homeowner against this.
It is possible to “cancel” a lifetime mortgage, but it is likely that early repayments may apply if this occurs.
As the result of an equity release plan of this kind, the homeowner may be able to access up to 60% of the value of their home depending on the provider. Usually, the older you are, the more you will be able to borrow.
When it comes to home reversion, the share of your property that has been sold to the provider is no longer yours. This means that, if the value of your home increases, you will only have access to the percentage that you have retained.
It is possible to buy back the portion that you sold to the provider, but you would be required to pay the full current market value for this.
You’ll usually be able to access between 20% and 60% of the value of the property share that you sell when using this approach.
It’s worth noting that both types of equity release may impact any means tested benefits you are receiving at the time, and that they will cause a reduction in your estate’s value.
How Do Equity Release Companies Make Money?
Equity release providers make money in different ways depending on the plan used.
Lifetime mortgage lenders earn money from the interest and compound interest charged on the loan, while home reversion schemes buy the agreed share of your property for below market value, then receive the full value of that portion when the property is sold.
Can I Sell My House if I Have a Home Equity Loan?
The matter of equity release often seems complex and binding – leading many homeowners to wonder “can I sell my house after equity release?”.
Whatever your chosen kind of equity release, a house sale will be absolutely achievable.
You may need to repay the provider of your equity release before selling your home. Alternatively, you may be able to move a lifetime mortgage over to a new property.
You will also be able to sell your property after home reversion, though you will need to decide whether you wish to “buy back” the portion of the property you initially sold to the lender before doing so. As we have mentioned, you’ll be charged the current market rate for doing this.
Alternatively, you will be able to sell your stake in the property for its current value, and the provider will receive their specific percentage from the resulting sale price.
What Home Equity Release Problems Might Arise When Selling My Home?
If you decide to exit your equity release plan entirely by paying off all amounts owed, then the property is yours to do with as you please.
However, if you wish to transfer your plan to a new property after selling the old one, you may need to meet certain requirements.
Depending on the product you use, any of the following may apply:
- The lender may need to approve your new property before you can transfer the product
- You may need to repay a certain amount to your provider if your new property is worth less than the old one. This might include a portion of your loan and the related interest
It is worth noting that some providers will allow clients to “downsize” without being charged for early repayment. If you are considering equity release, it is definitely worth checking whether your chosen lender offers this kind of protection.
Whatever action you decide to take, and whatever product you use, it’s important to be sure that you are making the best decision for your future and your finances.
In order to ensure that your provider is properly regulated, and that they offer a high standard of service, it’s a good idea to check that they are registered with the Equity Release Council.
If you have any concerns about your chosen product, do not hesitate to contact the Financial Ombudsman Service (FOS).
Any Questions?
So – can you sell your home if you have equity release? The answer is yes!
We hope that this advice on equity release has been helpful and insightful. If you require any information about selling your property fast in order to receive a cash payment, feel free to get in touch with our knowledgeable team today.
We will be able to undertake a desktop valuation straight away. Following this, we will provide you with a no-obligation cash offer. Once you have accepted, we can begin working to sell your home in as few as 7 – 21 days, with all legal fees covered.
