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How to Navigate Inheriting a House with Equity Release

Estimated reading time 7 minutes

Inheriting a house can be an emotionally charged experience, filled with memories, sentimental value, and perhaps even financial complexities. When it comes to dealing with a property that comes with an equity release plan, the situation can become even more intricate. This guide aims to shed light on what equity release means in the context of inheriting a property and how you can navigate this process smoothly.

Understanding equity release

Firstly, let's demystify what equity release entails. Equity release is a financial product that allows homeowners, typically those aged 55 and over, to release equity from their property while still living in it. Essentially, it enables homeowners to access the value tied up in their home as a lump sum or in smaller amounts.

There are two main types of equity release plans: lifetime mortgages and home reversion plans. With a lifetime mortgage, you borrow money against the value of your home and the loan is repaid, along with accrued interest, when you pass away or move into long-term care. On the other hand, a home reversion plan involves selling a portion or all of your property to a provider in exchange for a lump sum or regular payments.

Implications of inheriting a house with equity release

When you inherit a property with an equity release plan, it's crucial to understand the implications involved. Firstly, you'll need to determine the outstanding balance on the equity release plan. This will give you an idea of the amount that needs to be repaid to the equity release provider upon the homeowner's passing.

It's also important to note that the responsibility for repaying the equity release loan typically falls on the estate of the deceased homeowner. This means that the outstanding balance will need to be settled before any inheritance can be distributed to beneficiaries.

Options available to beneficiaries

As a beneficiary inheriting a property with an equity release plan, you have several options at your disposal:

Sell the property

One of the most straightforward options is to sell the inherited property and use the proceeds to repay the equity release loan. This allows you to settle the outstanding balance and distribute any remaining funds among the beneficiaries.

Refinance the equity release plan

In some cases, it may be possible to refinance the equity release plan to more favourable terms or with a different provider. This can help reduce the outstanding balance and make it more manageable to repay.

Make partial repayments

Depending on the terms of the equity release plan, it may be possible to make partial repayments towards the outstanding balance. This can help reduce the overall debt and make it easier to settle when the property is eventually sold.

Seeking professional advice

Navigating the complexities of inheriting a property with an equity release plan can be daunting, which is why it's essential to seek professional advice. A financial advisor or solicitor with expertise in equity release and inheritance can provide invaluable guidance tailored to your specific situation.

They can help you understand the terms of the equity release plan, explore the available options for repaying the outstanding balance, and ensure that the inheritance process is handled smoothly and efficiently. Additionally, they can assist in coordinating with the equity release provider and managing any legal and administrative requirements involved.

How can Bettermove help?

Inheriting a house with an equity release plan can present unique challenges, but with the right knowledge and guidance, it's possible to navigate this process successfully. By understanding the implications involved, exploring the available options, and seeking professional advice, you can ensure that the inheritance process is handled with care, respect, and financial prudence.

If you choose to sell the property you have inherited with equity release, Bettermove can make this happen. As a trusted cash house buyer, we can purchase the property from you ourselves, tailoring the process to meet your requirements. Alternatively, if you grant us 30 days, we will find you a buyer from our network of pre-approved cash buyers and investors. Whichever route to sale you choose, the team will be extremely flexible and empathetic to your current situation. You can find out how our process works in more detail.

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Got questions?

Inheriting a House with Equity Release FAQs

What are the tax implications of inheriting a house with an equity release plan? Will beneficiaries be subject to any taxes on the inherited property or on the equity release plan?
Tax implications when inheriting a house with an equity release plan can vary depending on jurisdiction and individual circumstances. Generally, beneficiaries may be subject to inheritance tax on the value of the property and potentially capital gains tax if the property's value has increased since the original homeowner acquired it. Additionally, any income generated from the equity release plan, such as interest or rental income, might be subject to income tax. It is advisable to consult with a tax advisor or accountant to understand the specific tax obligations and implications.
The value of the inherited property can impact the outstanding balance of the equity release plan. Typically, an appraisal of the property is required to determine its current market value. The equity release provider will then compare this value to the outstanding balance on the plan to ascertain the amount owed. An independent appraiser or surveyor can conduct the property appraisal to ensure an accurate valuation.
Selling a property with an existing equity release plan may incur certain fees or penalties. These costs can include early repayment charges, valuation fees, and administrative fees related to closing the equity release plan. These expenses should be considered by beneficiaries when deciding whether to sell the property to repay the equity release loan. It is essential to review the terms and conditions of the equity release plan or consult with the provider to understand any associated costs fully.
Beneficiaries typically have the option to continue the equity release plan instead of selling the inherited property. However, this decision depends on various factors, including the beneficiary's financial situation, the terms of the equity release plan, and their willingness to assume responsibility for the ongoing loan repayments and interest accrual. Continuing the equity release plan may require meeting certain eligibility criteria and fulfilling specific requirements set by the equity release provider.
If the outstanding balance of the equity release plan exceeds the value of the inherited property, beneficiaries may face a shortfall situation. In such cases, beneficiaries should consult with the equity release provider to discuss potential solutions, such as negotiating a reduced settlement amount, refinancing the loan to more favorable terms, or exploring alternative repayment options. It may also be beneficial to seek legal and financial advice to navigate this challenging situation and determine the most suitable course of action.