Selling a Property with an Equity Release Mortgage: A Practical Guide

There are several reasons why you may want to sell a property which has an equity release mortgage, 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.

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.

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 certain timeframe such that there may be early repayment charges applicable.

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 how much will need to be paid back to the lender on 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 lender’s requirements. The lender will be able to advise you if this is an option for you.

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 a 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.

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 because they understand the lender requirements and the technicalities involved in redeeming/porting an equity release mortgage. Your solicitor will liaise with the lender to ensure that all legal requirements are met before completion.

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 important to note that depending on the type of equity release mortgage, the final redemption figure may not be made available until the day of completion due to the way interest is calculated.

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.

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 on 01242 500860 and we’d be happy to help.