Can You Move Home If You Have Equity Release?
Nigel and Susan contacted me because they wanted to increase their disposable income and spend more time travelling to Europe on skiing holidays now that the travel restrictions are easing after the Covid-19 pandemic. Their major concern was whether they’d be able to move house at some point in the future if they take equity release now.
Nigel and Susan had been happily retired for many years and own their top-floor flat in London. Their monthly income from their pensions had been enough to cover their skiing trips abroad every few years. The pandemic and its resulting travel restrictions meant it had been some time since they’d been able to enjoy spending time in the Alps. Like most people, Nigel and Susan felt they’d lost the last two years of their lives, so there was time to make up. Going forward, they wished to live more in the moment and devote time to doing more of the activity they like most; however, this was going to take more money than their retirement income could now cover.
Whilst they were both very fit and able when I met them, they did acknowledge that living in a top-floor flat with no lift is likely to become challenging as they get older. Part of our discussion was around the potential of them downsizing or moving to a more suitable property in the future, and it came to light that Nigel held the belief that releasing equity from his property now would mean they’d need to remain living in his current flat until they were “carried out in a box” (his words, not mine!). There’s now a downsizing-protection feature that’s widely available with lifetime mortgages, and I explained this could be an option for them.
If you’re asking, “Can I move house if I take out equity release?” the answer is yes, but make sure that your lifetime mortgage has built-in downsizing protection.
The rules on downsizing protection differ between providers; these are the terms set out by Nigel and Susan’s provider:
“This lifetime mortgage has downsizing protection as a standard product feature. If you apply to transfer your lifetime mortgage but your new property does not meet our lending criteria, the downsizing protection feature allows the lifetime mortgage to be repaid in full without an early repayment charge. To benefit from downsizing protection, you need to have held your lifetime mortgage for three years or more and you must have kept to the terms and conditions.” (Source: Aviva downsizing protection)
Each lifetime mortgage provider offers variations on downsizing protection. As an adviser, I’ll review your personal circumstances and guide you on the most suitable one for your needs.
It’s worth noting that if you downsize and transfer your lifetime mortgage to a new property with a lower value, then you might be required to pay back some of your lifetime mortgage to the provider using some of the sales proceeds from your current home. The reason for this is to ensure your loan-to-value ratio isn’t higher than the provider’s maximum limit. For example, it isn’t possible to transfer a £500,000 lifetime mortgage to a property worth only £400,000 because the loan-to-value ratio for this would be 110%.
Nigel and Susan were thrilled that they’d be able to move in the future, whilst also benefitting from releasing some equity now to pay for their favourite skiing holidays without having to sell his existing flat.
If you’re considering equity release and are confident that you’ll move home in the future, downsizing protection is a fantastic feature that can help give you peace of mind. If you’d like to find out more fill in the contact form below and I’ll get in touch!
