Several factors deserve careful consideration if you’re considering downsizing or equity release. Both options have benefits and drawbacks.
Owning your home is a significant achievement, and it can provide financial support when needed. Many homeowners explore ways to access the value tied up in their property.
One common option is selling your home and moving to a smaller, more affordable property. Downsizing can free up money and reduce upkeep costs. However, it may involve leaving behind a familiar community or moving further from loved ones.
Alternatively, a lifetime mortgage could suit those who wish to stay in their home. This form of equity release allows you to unlock tax-free cash through a loan secured against your property. It lets you access funds without the need to sell or relocate.
Both options require careful thought, as each has long-term implications. Take time to weigh up the pros and cons before deciding.
How Much Could It Cost?
When deciding which option is best, consider all costs and efforts carefully. Below is a checklist of potential expenses to help you decide what suits your needs.
All costs stated are subject to variation and may include VAT. Always shop around to secure the best deal. The information provided reflects fees as of June 2024.
Mortgage Fees
If buying a home with a mortgage, an arrangement fee is likely. These typically range from £999 to £1999. Fee-free mortgage offers may exist but often come with higher interest rates. You can add this fee to your loan, though interest will apply.
For a lifetime mortgage, the arrangement fee is usually £599. This is payable upon completion and deducted from the released cash amount. Adding this fee to your lifetime mortgage increases the amount owed, and interest accrues.
Valuations and Surveys
For a standard mortgage, lenders require a property valuation, often included in the sale price. Additionally, depending on the survey type, you’ll need a home survey costing between £500 and £1500.
For lifetime mortgages, valuations start at around £125 but can exceed £2500 for larger properties. Some lenders offer free valuations.
Legal Fees
Solicitors handle the legalities of buying a property. Costs range from £500 to £1500, covering local checks and any issues surrounding your new home. Equity release specialists typically charge around £860 for lifetime mortgages.
Electronic Transfer Fee
This is often included in your legal fees for standard purchases. For lifetime mortgages, expect a fee of around £30, deducted at completion.
Estate Agent Fees
Selling your home involves an estate agent commission, typically 1% (plus VAT) of the selling price. These fees are often negotiable. Estate agent fees are not required for lifetime mortgages.
Stamp Duty
Stamp Duty applies to residential properties costing over £250,000, with rates ranging from 5% to 12% on portions above this threshold. Properties below £250,000 are exempt. Lifetime mortgages do not incur Stamp Duty.
Ongoing Costs and Debts
Downsizing can reduce or eliminate mortgage payments, potentially saving significant money. Early mortgage repayment may trigger penalties. A smaller home could also lower energy bills and maintenance costs.
Lifetime mortgages allow you to pay some, all, or none of the interest. Any unpaid interest compounds increase the total debt. The loan is repaid when your property is sold, typically after death or moving into long-term care.
Advice Fees
Speaking to a mortgage adviser can be helpful. Advisers often charge a percentage of the loan amount, so it’s worth comparing costs. Lifetime mortgages require advice from qualified professionals, with fees varying by adviser. Some charge fixed fees, while others take a percentage of the loan.
Selling Considerations
Selling your home can be unpredictable. Finding a buyer might take longer than expected, delaying your plans. Offers may fall short of expectations, impacting your budget for a new home. Removal fees could also add to your expenses.
For lifetime mortgages, selling isn’t required. However, your property must be valued, and legal advice is essential. These considerations are key when exploring your options.
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