Table of Contents
Introduction
There are several reasons for selling a property with Equity Release, whether this is because you wish to move house or because you have inherited a property that needs to be sold. While it may seem more complex, this practical guide will take you through the process step by step.
Selling a property with Equity Release: A practical 7-step guide
#1 Understand the Equity Release mortgage
Before proceeding, you should make sure you have a thorough understanding of the Equity Release mortgage. Different types exist, such as lifetime mortgages and home reversion plans, with varying terms and conditions. If it is available to you, review the mortgage Offer to find out how it affects the sale of the property.
If selling an inherited property (or because the remaining borrower enters residential care), there may be certain obligations such as notifying the Lender of the change in circumstances, amending the buildings insurance (if the property is empty) and (depending on the type of mortgage) continuing to make regular payments to ensure that the terms and conditions are adhered too.
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#2 Check eligibility
Ensure you are eligible to sell the property. For example, if you have inherited the property, you must obtain a grant of probate or letters of administration before the property can be sold. This can take time and cause delays if this is not obtained early enough. Some mortgages have restrictions on selling within a specific timeframe, which may result in early repayment charges being applicable.
#3 Contact the Lender
Advise the Lender of the change in circumstances (if relevant) and your intention to sell the property. Ask them to provide you with a redemption statement. This will confirm the amount that needs to be repaid to the Lender upon completion of the sale. They will also advise you of any ongoing obligations until the property is sold.
It may be possible to port the mortgage to a new property, but this will depend on the terms of the mortgage and the Lender’s requirements. The Lender will be able to advise you if this is an option for you.
#4 Engage an estate agent
The estate agent will value the property, and with this valuation, you will be able to work out what equity might be left in the property after the mortgage is redeemed. Equity Release Council-compliant plans will have no negative equity guarantee, meaning you will never pay back more than the property is worth. The Estate agent will market the property, help you to negotiate offers and find a suitable buyer.
#5 Legal process
Once a buyer is found, engage a Solicitor to start the legal work. It is a good idea to appoint a Solicitor who specialises in Equity Release conveyancing, as they understand the Lender’s requirements and the technicalities involved in redeeming or porting an Equity Release mortgage. Your Solicitor will liaise with the Lender to ensure that all legal requirements are met before completion.
#6 Repaying the mortgage
On completion, the Solicitor will repay the mortgage from the proceeds of sale. If the sale amount exceeds the mortgage balance, you’ll receive the remaining funds.
It is essential to note that, depending on the type of Equity Release mortgage, the final redemption figure may not be available until the day of completion, due to the calculation method used for interest.
#7 Consider tax implications
Be aware that capital gains tax or inheritance tax may apply to the sale proceeds, depending on your specific circumstances. You should consult with a tax professional to understand your tax obligations.
Frequently asked questions
Can you sell a property with an Equity Release?
Yes, you can sell a property with an equity release plan, but there are important considerations.
If you have a lifetime mortgage, the loan and any accrued interest must be repaid in full upon the sale of the property. Some plans may also include early repayment charges, unless you qualify for features such as downsizing protection.
For home reversion plans, where part or all of the property is owned by the provider, their approval is required before the property can be sold. They will then claim their share of the sale proceeds based on the current market value.
If you’re considering selling, it’s essential to review your plan’s terms and consult with your equity release provider, financial adviser, and solicitor to understand the financial implications and ensure a smooth process.
What does Martin Lewis say about Equity Release?
Martin Lewis, the well-known financial expert, advises caution when considering equity release. He emphasises that while it can be a useful tool for some, it’s not the right choice for everyone. He often emphasises the importance of understanding the long-term financial implications, including the impact on inheritance and the overall cost of the plan. Martin recommends seeking independent financial advice and exploring all other options before committing to an equity release plan.
However, remember that almost all Equity Release Council-approved lifetime mortgages allow penalty-free repayments, which help control these costs. Find out more in our free guide here.
Can you sell a house if you’ve not paid off the mortgage?
Yes, you can sell a house even if you haven’t fully paid off the mortgage, including equity release loans.
When the property is sold, the outstanding mortgage balance (including any accrued interest) is repaid directly from the sale proceeds. Any remaining funds after repayment are yours to keep. Please note that you may incur charges if you repay your equity release mortgage early. These charges can apply depending on how long the plan has been in place and the specific terms of your agreement.
How do you transfer Equity Release to a new property?
Transferring equity release to a new property is possible through a process called ‘porting’, but it depends on your lender’s criteria.
Most lifetime mortgage plans allow you to transfer the loan to a new home, provided the new property meets the lender’s requirements. For example, the property must be of standard construction, in good condition, and within the lender’s acceptable value range. If the new property is worth less than your current home, you may need to repay part of the loan to reduce the lender’s risk.
If porting isn’t an option, you’ll need to repay the equity release loan in full, including any accrued interest, before purchasing a new property. Always consult your equity release provider early in the process to confirm whether porting is feasible and to understand any additional costs, such as valuation or arrangement fees.
Conclusion – selling a property with Equity Release
Selling a house with an Equity Release mortgage can be complex, but with careful planning and the right professional guidance it can be a smooth and stress-free process.
If you’d like to explore further or discuss your unique situation, please contact us at 01242 500860, and we’ll be happy to help. See our Frequently Asked Questions or ask us your own question.