When it comes to financial planning, it is essential to explore all your options carefully, but even more important is to understand the full implications of your financial decisions today. Equity release proves to be a good option for many people, and if you’re considering a home equity release as an option, it is necessary to fully understand it.
Therefore, decisions made now could be influential in the future should your circumstances have to change. One of these situations would be if you wish to move house in the future. This could be for several reasons: -
- Downsizing to a smaller property to raise cash to assist with financial affairs
- Moving to a property for mobility reasons e.g. to a bungalow or sheltered accommodation
- Move house to live nearer to the children to help with child minding or health care issues
A quick search online can help you find lots of information about equity release. Many equity release brokers have websites with ‘frequently asked questions’ (faq’s) sections that provide basic information about equity release mortgages. Here you can understand the two main types of equity release schemes – a lifetime mortgage and the home reversion plans. These all help the customer understand the potential risks and benefits of equity release plans and therefore form the basis of discussion with the family.
One of the common questions that people have when it comes to equity release mortgages is whether it is possible to move home once you have a lifetime mortgage or even a home reversion plan. The simple answer is yes, as long as the lender approves of the new property and the build criteria meets their acceptable lending policy.
All companies that Equity Release Supermarket deal with are members of the Equity Release Council (formerly the trade body called Safe Home Income Plan or SHIP for short). It is a condition of membership that the scheme is an approved equity release plan, which allows the applicant to transfer the mortgage to a different property.
With home reversion plans, moving is generally more complicated as the ownership of the existing home lies with both the lender and the original homeowner. Moving may involve changing the percentage ownership in the new property. Also, in case of downsizing, the home reversion lender may keep any profit made on the existing house. There are several factors to be considered, and the feasibility of a move will depend on the particular property.
While transferring an equity release lifetime mortgage is simpler, it involves additional costs, as fresh paperwork will need to be drawn up for the new property. Most lenders will require a new application which will involve all the same associated fees; namely valuation fee, application charge, solicitor’s fees and any advice fee charged by your equity release adviser.
There are further considerations when transferring lifetime mortgages which are affected by how much cash was borrowed on the original plan. The reason is that if someone is downsizing, they may need to pay off some of the existing balance on moving to a lower value house. When calculating the maximum amount that can be borrowed on the new valued property, this figure may not be high enough to pay off the balance from the former property.
Therefore, to bring the transfer in line with the lower valued property, a capital sum may need to be paid off the balance. The good news is that this would come from the equity raised by downsizing anyway and there is no penalty upon taking this course of action.
Usually, there are no restrictions on moving home if the equity release is redeemed. However, you must be aware of the possible early repayment charges if the lifetime mortgage plan is paid off when moving house. Many providers charge an early repayment penalty, typically if the deal is cancelled within five years, or particular government gilts have fallen since the signing of the contract. Considering the high costs of cancellation, not enough equity may be left over to invest in a new property, so moving is generally a viable option for those who wish to transfer the equity release deal rather than cancel it altogether.
Nevertheless, to establish the exact position of your existing equity release mortgage obtain a current redemption statement which your equity release consultant can request on your behalf, with an appropriate client authority. From there an equity release calculation can be made to ascertain how much can be borrowed and the necessary recommendations can be made from there.
If you are looking at applying for equity release, or have an existing equity release scheme & considering moving home then contact Equity Release Supermarket team now on 0800 678 5159.
Alternatively, you can email the Equity Release Team - [email protected].