My parents want to downsize, but can they move their lifetime mortgage?

Q My parents took out an equity release lifetime mortgage in 2005. I believe the sum was £30,000. They are now looking to downsize and move nearer to where I live.

I am awaiting an up-to-date statement of their balance but believe it will be in the region of £90,000. Their current accommodation is worth around £240,000, having only increased by some £40,000 during that period.

I am concerned about whether they will be able to move it and what happens if the property they want to move to is valued at a lower amount than their current one, on which the lifetime mortgage was secured. LR

A I would be very surprised if the balance of your parents’ lifetime mortgage is as much as £90,000 even after 10 years. Research by consumer body Which? shows that after taking rolled-up interest into account on an equity release lifetime mortgage of £40,000, the balance after 10 years would be £79,300 assuming an average fixed interest rate of 7.09%. Using the same rate on the £30,000 mortgage your parents took out back in 2005, the balance in 2015 will be more like £59,500. For them to owe £90,000, they would have to be paying an interest rate of way over 10%, which is high even for equity release mortgages.

As far as moving house goes, assuming their mortgage provider is a member of trade body the Equity Release Council your parents’ mortgage is portable. So this means that they have the right – without any additional cost apart from the usual costs associated with moving house – to move to a “suitable alternative property”. What this means is that the new property must be acceptable to the mortgage provider as continuing security for the lifetime mortgage.

Properties unlikely to be suitable include those in retirement complexes – because they are hard to sell on the open market – as well as studio or basement flats, purpose-built flats and maisonettes in a local or housing authority block of more than four storeys, moveable homes, houseboats, farms, hotels, guest houses and B&Bs. So it would be a good idea to check what their lender considers acceptable before your parents start house hunting.

If your parents do downsize and move to a property valued at less than their current home, they may have to repay some of the loan. But this will happen only if the outstanding balance on the mortgage exceeds the percentage of the property’s value that the lender is prepared to lend, which also depends on age. The older you are, the more you can borrow but at the age of 65, you typically can borrow up to 30% of the value of a property.

In your parents’ case, if the balance on the lifetime mortgage is £59,500, they would exceed the 30% threshold if they decided to buy a house costing less than £198,400.