Alternatives to equity release: what are your options?

If you’re looking to access the equity you’ve built up in your home, it’s worthwhile researching all the alternatives to equity release before you commit to something like a lifetime mortgage, which could prove expensive.

From downsizing to taking in a lodger there are a number of alternatives that could not only improve your finances, but depending on your circumstances, give your retirement a boost too.

Is downsizing a good alternative to equity release?

Selling a large family home and moving to a smaller, less expensive property is the cheapest way of releasing equity.

Downsizing may suit you if you relish a fresh start in a new home. However, Georgina Oxton, divisional manager for equity release at LV= says some people will find downsizing an emotional wrench. ‘Speaking to customers, what I frequently hear is that people don’t want to leave the home they’ve lived in for years and brought their children up in.’

You may also be disappointed with the amount of money you can release – in addition to all the costs of moving house, you may get less than you expect for your existing home or have to spend more on your new one.

Pros:

Smaller homes are cheaper to run
No debt to repay
Fewer money worries

Cons:

You may not be able to release as much money as you’d expect
You may struggle to find a cheaper home that suits you
You may have to move to an unfamiliar area or leave family and friends

Retirement interest-only (RIO) mortgage as an equity release alternative

This is an interest-only mortgage over-55s can use to repay an existing loan, or any other purpose. Unlike lifetime mortgages you need to repay interest each month but you only repay the capital when you sell your home.

Will Hale, CEO of adviser Key says: ‘To take out a Retirement mortgage, you need to be able to pass affordability checks and prove that you can make the payments for the rest of your life – even if your partner passes away.’ Struggle with repayments and you could lose your home.

Pros:

Younger people may be able to borrow more
Interest is paid off monthly, reducing your borrowing costs

Cons:

You’ll need a decent income to pass affordability checks
You could lose your home if you can’t afford repayments

Renting

You could release equity by selling your home and renting a new one. This might give you a bit more financial wiggle room in the short term, however it’s not without risks. Will Hale explains: ‘The benefits are that you’re not responsible for the upkeep of the property and have the freedom to move without worrying about selling your home.’

‘However, you will also need to ensure that you have sufficient income or savings to cover your rent for as long as you live. If you run out of money, you’ll get state support but it may not cover your current home.’

You may not be able to agree a long-term tenancy either, making it harder to put down roots.

Pros:

Can raise a cash lump sum
Gives you the flexibility to move home easily
Your landlord will pay for the upkeep of your home

Cons:

You may not get security of tenure
You may run out of money and struggle to pay your rent
You’ll need to consult your landlord about any changes or refurbishments you want to make

Take in a lodger

If you have a spare room why not consider renting it to a lodger? Each year you can earn up to £7,500 tax-free under the Rent a Room Scheme. ‘It’s not for everyone,’ says Oxton, ‘but if you are older it can be very helpful from a welfare point of view.’

Pros:

Provides tax-free income
Potential for company and new social opportunities
Enables you to stay in your home

Cons:

You need to share your home with somebody else
Turnover of lodgers may be high

Check your grant eligibility

If you’re considering equity release to carry out alterations or repairs to your home, it’s worth contacting your local authority to see if you are eligible for grants.

Pros:

A cheap way of fixing a specific problem

Cons:

You won’t have any additional cash for other expenses or spending plans

Check your entitlement to benefits

If money is tight it’s always worth checking you’re claiming all the benefits you’re entitled to.

Pros:

Boosts your income without borrowing

Cons:

You cannot get lump sums for big expenses

Which alternative to equity release is right for me?

It’s always best to get expert advice before committing, so speak to your mortgage provider who will be able to offer advice tailored to your specific circumstances.

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