Can We Still Move Home ?

Having taken equity release does not mean that you are necessarily trapped in your property.

You can still Downsize or Upsize if you wish, with the permission of the Equity Release lender.

Some lenders will require the initial mortgage plus interest to be repaid on moving. This will obviously reduce the amount available for the new home.

Some lenders will allow the original Equity Release arrangement to continue if there is enough equity in the new property.

Example of Equity Release

Bill and Laura have a Lifetime Mortgage which they took out five years ago. A that time, their property was worth £150,000 and they borrowed the maximum amount allowed (20%), a total borrowing of £30,000. 

Their property is now worth £200,000 and the mortgage debt has increased to £40,000. As they are now 5 years older, the maximum borrowing has increased to 24% of the property value, i.e. £48,000.

 Subject to the Equity Release lender’s terms and conditions, their options could be as follows;

They could move to a property of the same value

Because the accumulated debt of £40,000 is below the maximum loan to value for their age now (£48,000), the lender may allow them to move without repaying the debt. 

It may even be possible for them to increase their borrowing up to the maximum.

They could move to a property of lower value.

The lender will  want to ensure the total mortgage debt on the new property does not exceed 24% of the new property value, so they would be required to repay the difference between the two figures.

As an example, if the new property was valued at £150,000, the total mortgage available at 24% on it would be £36,000.

Because they owe £40,000, they would have to repay £4,000 to the lender from the proceeds of their sale. 

They would, however, benefit from the £46,000 profit remaining from the sale, once the mortgage figure had been reduced to £36,000.

They could move to a property of higher value.

They could move to a property valued at £250,000 for example.

The lender may not require repayment, because the debt of £40,000 is less than 24% of the new property’s value (£60,000). 

It might even be possible to increase their borrowing mortgage to £60,000 on the new property.

If the value of their property had risen slowly or even fallen, or the mortgage interest had rolled up at a higher rate, Bill and Laura might not be able to move. 

For example, if the property increased in value to £160,000, the maximum available to them (24%) would be £38,400 based on their ages now. 

It is doubtful that the lender would allow them to move because their current mortgage debt is £40,000.

If a move were permitted, they would have to repay £1,600.

Taking into account the costs of moving and the lender’s charges for early redemption, it is unlikely that it would be a viable proposition financially.

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Be sure, if you are considering Equity Release, that your Adviser explains these points to you.

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Pat Cunningham  CeMAP,  CeRER