How to switch equity release plans to get a cheaper deal

Can you switch to another equity release provider?

Yes, if you have a lifetime mortgage you have the option to move to another provider, or to stick with the same provider but move to a different scheme. 

Lifetime mortgages are the most popular type of equity release. They allow you to borrow some of your home's value and the loan is then repaid when you sell the property, die or go into care.

Home reversion plans are another type of equity release, and involve you selling part or all of your property to the home reversion provider. When the property is sold, the proceeds are divided based on the percentage you own and the percentage that your provider owns.

If you have a home reversion plan, you don't have the option to switch. 

• Find out more: What is equity release and how much does it cost?

If you take out an equity release product recommended by HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit mission

Is equity release right for you?

Speak to the experts at HUB Financial Solutions, they'll be able to help

Go to HUB Financial Solutions

Why switch equity release plans?

In theory, switching your lifetime mortgage could help you to benefit from lower interest charges, which could save you thousands of pounds over the long term.

There are hundreds of equity release products on the market, so it can pay to shop around.

But with interest rates having risen sharply in the past couple of years, you might struggle to find a cheaper alternative to the deal you already have, unless you took out your plan many years ago when lifetime mortgage rates were even higher. 

Another potential benefit of switching is that you could release more cash from your home if your property has increased in value since you took out your lifetime mortgage. 

Switching lifetime mortgage will also allow you to change the terms of your deal. For example, you might want a plan that allows you to pay off a proportion of the loan each year without a penalty charge, or one that ring-fences part of the value of your home to guarantee an inheritance for loved ones.

• Find out more: What's happening to house prices?

Will I have to pay fees to switch?

Possibly, as some plans come with early repayment charges. These can be 'fixed' or 'variable.' 

Fixed early repayment charges are typically applied on a sliding scale - for example, they might start at 10% of the value of the loan in year one, reducing to 5% after you've had the loan for five years, and so on. 

Variable charges can be higher - though they are typically capped at a maximum of 25% of the amount borrowed. 

The amount you're charged is linked to the value of government bonds, known as 'gilts' - specifically the movement in gilt yields between the date you took out the lifetime mortgage, and the date of early repayment. If gilt yields have risen in that time, you won't face an early repayment charge. 

Because of early repayment charges, it might take you several years before switching to a cheaper deal will start to pay off.

• Find out more: What is a gilt?

Is switching a lifetime mortgage worth it?

As well as considering any early repayment charges, you'll need to check how much you still owe, and what your current interest rate is.

Then you'll need to factor in the cost of taking out a new plan. Here are some of the typical upfront fees you could face:

• Application fees: not all providers will charge a fee, but it can be around £500 or £600. You may be able to add this to the amount you borrow.
• Legal/solicitor fees: these are typically around £500 or £600 and cover the work conducted by your solicitor in dealing with the legal side of setting up the arrangement.  
• Valuation fees: these can vary according to the property value but tend to be a few hundred pounds. Some lenders offer free valuations.
• Adviser fees: you'll need to get financial advice before using equity release. This can cost in the region of £1,000, but some advisers receive commission from lenders instead of charging customers.

How do you switch a lifetime mortgage?

Switching a lifetime mortgage will require you to take regulated financial advice - it’s no different to taking out a plan in the first place (even if you’re staying with the same lender). 

• Ensure that your chosen adviser is a member of the Equity Release Council and preferably chooses from the whole of the market. 
• Products provided by members of the Equity Release Council’s members must meet certain standards. For example, you'll have the right to remain in your property for life or until you need to move into long-term care. They also offer a ‘no negative equity guarantee’, meaning  you'll never owe more than the value of your property when it is sold.
• A free option is the charity StepChange, which compares providers and can arrange an equity release deal for you through its StepChange Financial Solutions service.  
• Alternatively, the service provided by HUB Financial Solutions, who we have partnered with, can also explain your options and arrange a deal.
• You’ll also need to appoint a solicitor. Again, it’s best to opt for one who carries the TrustMark of the Equity Release Council.  

Your adviser will do much of the legwork for you, such as sending your application form to the new lender. Funds will be eventually released to your solicitor in order to pay off your old lifetime mortgage. 

• Find out more: How to find a financial adviser