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What happens if I want to move home in future?

by | Oct 10, 2022 | Equity Release

I often get asked, what would happen with an equity release plan should I decide to move home in the future? 

In this instance we are going to focus on lifetime mortgages as they are the most common equity release product on the market. For clarity, a lifetime mortgage is a loan secured on your home (in the same way a standard mortgage would be), however, it is designed to run for life so does not have to be repaid until you pass away or move into long-term care. You can pay interest as you go (and some capital back if you wish) or allow interest to be added to what you owe to be repaid at the end of the plan. 

When it comes to moving home while a lifetime mortgage is secured on your home, the simple answer is that you would have two choices:

  1. Repay the plan in full when you move.
  2. Port the plan with you to the new property. 

There are some things to be aware with either option which we will explore here: 

Repaying your plan

Repaying a lifetime mortgage before the end of its term can incur early repayment charges, which will vary depending on the terms of the plan you have. Speak to your lender and ask for redemption statement to get an accurate calculation on what this might cost. 

Some plans have a feature called downsizing protection which means that if you wish to move within a certain timescale (typically after 5 years), then you can do so and repay the plan without incurring a charge. Some downsizing features may require you to take the plan with you to the new property, however, if your new home does not meet the lenders criteria, you can usually repay it without having to pay a penalty or charge. 

The other consideration would be if you would have sufficient funds to purchase a new property if you repaid your plan. For example, if you sell your home for £200,000 and it takes £100,000 to repay your existing plan then you will only be left with £100,000 to purchase the new property. If you are downsizing, and this is enough, then that could work for you. If not you may have to consider option 2.

What is ‘Porting’? 

Within equity release (and in mortgages more generally), porting means transferring your existing plan from one property to another. This is always subject to the new property meeting the lenders criteria at the time, in other words, are they willing to lend on your new home given its construction, condition, and location? All the lifetime mortgage providers that we work with offer porting, so, assuming the new property is acceptable to the lender then you can transfer your plan. 

To follow the same example from above if you sell your home for £200,000 and have agreement to port your £100,000 lifetime mortgage to your new property, you will have the full funds from the sale of your property to use towards the purchase a new property, because you are not repaying your loan. 

If you wanted to move to a property worth less than your current home you may still be able to port some of your loan, but you may not be able to port the whole loan amount. This is because the amount you can borrow against a property is limited by your age, so on a lower value house you may not be able to secure the same size loan as you currently have.  In this scenario the lender would ask you to repay some of the loan and allow you to transfer the remaining balance to the new property. If they did this, there would not usually be an early repayment charge for the element that you repay.

Which is the best option for me?

This very much depends on your circumstances. Some people port their plans because they wish to retain more of the sale proceeds of their current home to support their lifestyle in retirement, some buy more expensive properties and use the equity release to help achieve this, some prefer to be free of the lifetime mortgage altogether. Discussing your needs with an advisor will help you to clarify your options.

Get the right advice

If you are planning on taking out a lifetime mortgage and you intend on moving at some point in the future, (or think you may do), there are a few things we would recommend you think about discussing with your advisor. 

  1. Let them know if you would prefer to repay or port your plan. This will help your advisor guide you to the correct features regarding early repayment charges and downsizing protection. 
  2. Tell them when you think you are likely to move. This will allow your advisor to determine the optimal length of any applicable charges. Why not just choose a plan with the shortest charges every time, I hear you ask? Every plan is different and there may be a lifetime mortgage that has a longer charging period but compensates with a lower interest rate. If this longer-term charge still fits with your estimated time to moving, then it may be advisable to take it if the rate is lower. 
  3. Let them know the type of property you may move to. Not all lenders accept the same types of property. If this is the case, you may not be able to port your plan at all. If you have thought about where you might move, or the type of property you might move to, tell your advisor so they can give you a reasonable indication of whether you can transfer your plan across when you move, or at least make sure you understand the terms likely to be available at the time. Be aware that lender’s criteria can change, so it could be that your chosen lender may have updated their terms by the time you come to move.

Answering these, and other questions during the initial discussion with your advisor will help them match you with the best plan for your current and future needs.

Summary

In conclusion, I would say that the most important things you can do when considering equity release are to think about your needs now, then think about your needs in the future, and be as open and honest with your advisor as possible. No one has a crystal ball, but ultimately, advisors are there to help you make the best and most informed decisions possible.

By Craig Spiers – Later Life Mortgage Advisor at Lifetime Equity Release

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