If you’re considering equity release or you’ve already got an equity release mortgage you may be wondering what happens if you want to move home.
As we get older, our property needs tend to change, and this can be problematic if you’ve released equity from your property.
Many people who have an equity release mortgage opt to stay put for fear of causing financial problems – often to their own personal detriment.
A property with multiple stories may be wholly inappropriate for a 90-year-old with mobility issues and instead of being able to downsize they may feel trapped by Equity release.
The great news is that if you take an Equity release Council (ERC) standard equity release product then you have a number of options available to you.
This guide breaks down what you can (and can’t) do when moving house with equity release.
Can I Transfer My Equity Release Mortgage to Another Property?
The answer here is it depends on your circumstances and the equity release product you have.
Below we outline some of the most common situations and whether you can transfer your equity release to another property.
When transferring the equity release from one property to another it is known as porting.
You will find the process involved in porting your equity release to a new property is similar to the process when you first took equity release. It consists of the following steps:
- Receiving financial advice about the process. This is a requirement of all equity release transactions whether it is a new application or porting.
- Ensuring the property meets the lenders’ requirements, is of the right construction type and meets the valuation needed to port.
- Sometimes porting ISN’T the best option, and your financial adviser will recommend you sell the property and pay off your equity release before moving.
- Your adviser will provide you with a Key Features Illustration (KFI) which is a document that provides all the details of the product from the lender.
If You’re a Prospective Equity Releaser
If you haven’t yet taken an equity release product, you may have concerns about the restrictions that taking equity release places on you.
Many people mistakenly believe that once you’ve released equity from your property that you’re stuck there for life.
In some cases, this would be the right assessment and there are equity release products that prevent you from moving house and transferring the equity release to another property.
You should look for an ERC standard equity release product. An ERC equity release product will give you the following;
No Negative Equity Guarantee – This means that if the property drops in value and doesn’t cover the equity release mortgage balance then the lender has to stomach the cost.
This prevents you from owing more money than your property is worth.
The right to live in your property until you die or go into long term care – This means a lender can’t sell your home until you pass away or no longer reside there due to going into long term care.
Your beneficiaries will have the opportunity to remortgage the property or sell it themselves to redeem the equity release before the lender repossesses.
The right to move to an approved alternate property with no financial penalties – This allows you to move house to another suitable property and transfer your equity release.
What’s more the ERC standard is that this should cost you nothing to arrange with the lender (other fees apply).
The ERC also provides you other benefits and protections so you should seek an equity release product that is organised by an ERC member.
Unfortunately, in the UK membership to the ERC is voluntary and there are many providers who are still unregistered and provide products that don’t meet the above standards.
If You Have Released Equity Already
Moving home with an existing equity release product can be challenging, especially if the product you have was arranged by someone who isn’t an ERC member.
In the first instance you will need to check if the provider is a member of the ERC.
If They Are – You will be afforded the right to move property with no porting fees providing the property you’re moving to meets the lenders requirements (more on this further down).
If They Aren’t – You will need to look over the documentation provided to you at the time of taking the equity release.
Sometimes non-ERC members will still allow you to move property however there may be financial penalties for doing so.
Some lenders who aren’t ERC members don’t allow you to transfer the equity release at all.
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The ERC’s Right to Move
If you’re protected by an ERC standard equity release the good news is in most cases, you will be able to move and transfer your Equity release to a new property.
There are things that you need to be aware of though and you might still have a few challenges when transferring your equity release to a new property.
- The property will still need to meet the lenders’ property criteria.
- The property you’re looking to buy will also need to be in a good state of repair so that the lender can sell it on.
- The property value will need to cover the amount borrowed on the Equity release (more on this below).
The ERC stipulate that any member should make the utmost effort to facilitate someone transferring their equity release and any transfer should be done without financial penalty. Other fees are applicable though.
This means your equity release provider should not charge you any fees for transferring the mortgage to another property.
Fees Associated with Porting Equity release
A lender that is a member of the ERC won’t charge you fees to port the mortgage itself. But you will need to cover costs outside of their remit.
Valuation Fees – When porting the lender will instruct a valuation on your property. Valuation fees are typically non-refundable so you should make sure that you’re certain you want to buy the property before undertaking the valuation.
It is worth noting some lenders provide valuations free of charge so this fee might not be applicable in all cases.
Solicitors Fees – For all new equity release products you will need to take legal advice. Legal advice offers you protection when porting your equity release product, but you will be responsible for any legal fees.
Broker Fees – Some Equity release advisers charge broker fees. Again, you will need to make sure that you set aside any cost that may be applicable if you choose a broker that charges a broker fee.
If you’re moving home, you will probably have other costs associated with buying a property. This includes things like conveyancer fees and stamp duty.
What May Affect My Right to Move?
The biggest challenge faced by people looking to move and transfer their equity release is if the new property doesn’t cover the outstanding Equity release liability.
Sometimes a lender will allow you to move to a property that doesn’t meet the amount you have borrowed but will ask you to make a repayment on the loan for the difference.
For example, moving from a property worth £300,000 to a property worth £150,000 with an Equity release Loan of £150,000 means that there is going to be a shortfall.
In this case, a lender may request that you repay half (or more) of the money that you owe them.
This is because Equity Release lenders typically allow a maximum loan-to-value percentage of 50%.
You can avoid this scenario by ensuring the property you’re purchasing covers the security value for the existing loan. Your equity release broker will be able to provide more detailed advice about this.
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What Property Would a Lender Be Reluctant to Port an Equity Release Mortgage?
There are also other factors that can impact your ability to port your Equity release.
In general, an equity release provider is much more flexible than a traditional mortgage lender but there are still property types that are problematic with equity release.
Non-Standard Construction – It is typically an industry standard that a property should be constructed of brick with a tile or slate roof.
Properties with a thatch roof or other non-standard construction materials are likely to cause problems with equity release – this includes certain forms of concrete which has to be maintained to prevent concrete cancer.
Leasehold Properties with Insufficient Leases – There isn’t a set rule on how long a lease should be for the property to be suitable on equity release but normally providers require at least 99 years. If the lease is shorter, it may still be considered but extremely short leases will almost always be declined.
Age Restricted Properties (Retirement Properties) – Although these are attractive to older people, a lender will want to be able to sell a property on the open market and not be limited in recouping their costs.
Flood Risk Properties – An Equity release provider will be unlikely to lend on a property that could flood.
Flooding not only affects a property value but can also cause significant structural damage that puts off future buyers.
Property Requiring Renovation/Substantial Work – Again this comes down to a provider needing to be able to sell the property.
If a property needs work, then this will mean the market for buyers is reduced and the property value may not be enough to cover the loan.
If you’re concerned about property requirements, you should discuss them with Boon Brokers who will be able to advise whether lenders will find them suitable for equity release.
What if I Move to a Cheaper Property?
Your primary consideration when moving to a cheaper property is that it covers the existing equity release loan.
Calculations around this are very specific so you should discuss this with your broker in the first instance who will be able to advise you further.
If you’re in a position where the new property doesn’t meet the lending requirements, then you will likely have two options available.
- A lender may ask you to repay some of the existing loan in order to make the port an acceptable risk to them.
- You may not be able to afford the repayment required or decide repaying isn’t in your best interests – ultimately deciding to find a more suitable property.
Everyone’s circumstances are different which is why financial advice around equity release is mandatory. Your broker will give you all the information that is important to you in your circumstances and answer any questions you may have.
What if I Don’t Want to Port My Equity release?
If you decide that porting equity release isn’t the best option for you then you can opt to remain in your current property.
If you still want to move, then you can sell your property and settle the amount owed to the Equity release provider in the majority of cases.
This is something your broker will need to discuss with you and your provider to make sure it is within your financial means.
When settling an equity release early there are often Early Repayment Charges (ERCs) which could mean that you’re left with nothing/very little after the sale.
Your broker will be able to explain the process in more detail and advise specific to your situation.
Porting your equity release can be a fantastic option, but there are considerations you should be aware of. It is important to carefully look at your situation and discuss everything with your Equity release broker.
Boon Brokers is a UK whole of market mortgage, Equity release and insurance broker, contact us if you have any questions about porting your Equity release today.