Can I Sell My House if I Have Equity Release?

Equity release is one of those things that many property owners must consider at some stage. Whether it is to assist them with the costs associated with retirement, for home improvements, or maybe to release some funds to help their family.

Occasionally though, even with equity released, homeowners may find themselves in a position where they have to sell, or at least consider the prospect of selling a property they may have considered their forever home.

The good news for people that have had to put this decision to the forefront of their minds is that yes, you can sell your house if you have equity release. Just meet a few criteria and the chance to sell a percentage of your property is possible. Read on to find out how, as in this edition of our money matters property guides we dive into how you can sell a home with equity release.

Selling a home with equity release

Selling a home with equity release can be a straightforward process, especially if you look for a cash house buyer. Utilising the services of a company offering this means you can sell your house fast and clear the amount you borrowed when taking equity release.

In most cases, selling your house whilst there is still equity release on it will see early repayment fees and these can vary significantly so always enquire about these first.

In many cases, if you pay back anything between 10%-40% of the amount borrowed each year, you will likely be able to avoid significant charges.

What is equity release?

Equity release isn’t for everyone, in fact, it is only available to those aged over 55. It allows them access to part of the equity held in their house whilst they are still able to reside in it.

The money is paid to the homeowner as a tax-free lump sum and is repaid when the property is either sold or the owner passes away. Unless using a home reversion scheme where the value of the share owned by the home reversion lender is paid directly to them upon the sale.

Commonly, when applying for equity release, a homeowner will find two types available to them. Home reversion equity release or lifetime mortgage equity release. There are also retirement interest-only mortgages, also known as RIOS, that although not strictly an equity release plan, do work similarly.

What is home reversion equity release?

If you choose home reversion for equity release, you will be selling either a percentage or the whole property to a home reversion provider for either a lump sum or regular payments enabling you to live there rent-free. You will be able to remain living there until you choose to sell it at which time, the profits are divided between yourself and the home reversions provider.

If you opted to sell a percentage to the home reversions provider, you can increase this over time should you feel it necessary. Just remember, the higher percentage you sell, the more of your profit goes to the home reversions company. You should also remember that whilst still living there, you will remain responsible for any bills, maintenance, and insurance payments.

Home reversion is seen as a good option if prices are staying flat but not so good if property prices are rising substantially.

It should be noted that the percentage you sell will often be valued at much lower than current market values, so carry out research before committing.

What is lifetime mortgage equity release?

Lifetime mortgage equity release is probably the most common option of the types taken by homeowners.

It works by granting the homeowners a loan that is paid in one lump sum that will start building interest. Acting like a mortgage, it doesn’t get repaid until the property is either sold or the homeowner passes away. However, you can start making repayments sooner if you wish. Once the property is sold, the funds from it pay back the loan and any interest accrued. If there is any money left after this, it goes into the estate of the homeowner. Should this be an option you are weighing up, look for no negative equity guarantees. This way, your estate does not become responsible for any payments totalling more than the value of the property.

There are commonly two options within the lifetime mortgage equity release. One where you take a lump sum and another where you take smaller bits as you require them. This second option is known as drawing down and will see interest worked out slightly differently. Interest only gets charged on the amount you have drawn down and not the cash you haven’t yet taken.

With both, if you make no monthly payments, the interest will rise quite significantly and when the house is sold, the amount left to your estate could be significantly less. Should you wish to make monthly payments, you should check if there is a cap on annual overpayments. Many lenders will only allow up to 10% of the loaned value each year.

Retirement Interest only mortgages

These are much like the lifetime mortgage equity release plans but are not actually categorised as equity release. They work in a similar way as you receive a lump sum secured against the future value of your home but instead, interest must be paid back on the amount borrowed each month.

This is often seen as a cheaper alternative to the lifetime mortgage as you are paying interest off each month against the full value of the loan, with a lifetime mortgage, the interest is compounded, although, you can choose to pay it off each month if you wish. RIOS can be used to replace your current mortgage and work in similar ways to applying for a regular mortgage. You will need to show you pass affordability tests and the amount you can borrow will be based on property value, your age, your income, and the type of property that it is.

RIO mortgages are also portable meaning you can port the mortgage to another property should it be an option you wish to pursue.

Is equity release a good idea?

At first glance, equity release may sound like a great way to secure some funds that could help you, your family or the property itself without you having to sell, save or scrimp to make it possible.

Whilst it all sounds great that you may be able to lend a hand to the family, give yourself some extra spending power, or improve your property significantly, it must be remembered that there are costs to bear, and they can be quite significant.

Not only this, but the process for releasing equity isn’t quite as simple as saying you would like to release 50% of your home and then seeing cash fall into your bank account. Firstly, it is a loan so interest will accrue. Secondly, you must be over 55 before being able to get equity release, and thirdly, many lenders will want you to either own the property outright or have just a small amount left to repay on the mortgage.

You should then also factor in costs, and how long it takes but most importantly, look at how much you may be able to get for the portion of equity you want to release. Many lenders will in fact offer under the market rate for the portion you are selling. In some cases, you could find you are offered just 25% of the actual value.

Finally, you will not be able to leave your property to anybody in your will as the equity scheme will require the property to be sold to clear off any outstanding amounts.

How much does equity release cost?

You can spend significant funds on equity release, both in setting up a plan and cancelling one. Setting up equity release can cost anything from £1,000-£2,000 or more.

Then you must factor in any interest on the loan amount. Data released at the start of July 2023 showed that you can expect an interest rate of anything ranging from just under 6% to almost 7%. If you are not paying this back monthly, the amount owed can jump drastically and see the estate, when sold, not leaving much, if anything, to beneficiaries.

To cancel a plan or pay back the amount loaned could also see high levels of early repayment charges. This is especially noticeable with home reversion plans as should you wish to buy the percentage of the property back from the home reversion company, you will need to do so at full market value. Considering they are likely to have bought it off you for potentially as little as 25% of its true value, this can be quite damaging to your finances.

How long does it take to secure equity release?

Equity release isn’t a fast process and can take anything from 6-8 weeks to complete. The lender will want to carry out a valuation, process affordability checks and appoint a surveyor to check the loan is a worthwhile investment for them. It is this time scale that sees many people deciding to consult cash house buyers as a much quicker, smoother process can enable funds to be raised quickly.

Should you be concerned about your finances or looking at options to raise some funds for your family, equity release could be an option. It doesn’t come without its charges though which can see you or your loved ones up end up with nothing. Why not speak to Gaffsy instead, we buy any house, regardless of location, condition or type, enabling you to raise the funds with no interest, no legal fees and total freedom to use the cash as you wish. Better still, we work to fit around you. Our team will always prioritise your needs meaning you can have the house sold and cash in your bank in as little as seven days if needed. Contact our team today!