Equity release can be a great way for homeowners across the UK to release tied up cash from their property, however, it is not always the best solution for everyone. Which is why we believe it is important to discuss your personal circumstances with a qualified equity release adviser who will be able to make tailored recommendations to suit you.
If you are considering equity release, it is always important to understand the alternatives available to you before committing to an equity release plan. Take a look at some of the alternatives to equity release below and the impact this may have on your lifestyle.
What is equity release and how does it work?
Equity release allows homeowners aged 55 and older to access cash from their property equity. There are two main types of equity release for homeowners aged 55 or over, home reversion plans and lifetime mortgages.
A lifetime mortgage involves a loan secured against your property which will typically be repaid, in addition to any interest, when the last applicant passes away or moves into long-term care. Depending on the type of plan, you may be able to release equity with a cash lump sum or have the option to use a drawdown facility.
Alternatively, a home reversion plan allows you to sell part or all of your home to a provider at a discounted price with the right to remain in the property until you pass away or move into long-term care. At the end of the plan, the percentage that was originally sold will be reclaimed by your provider at market value often through the sale of your home.
Learn more about the pros and cons of equity release.
What are the alternatives to equity release?
There are a number of alternatives, including downsizing or moving to a less expensive area, using savings, borrowing in the form of a loan or by asking a relative or friend.
Some of the alternatives to equity release include:
- Remortgaging your home
- Switching to a retirement interest only mortgage
- Downsizing to a smaller property
- Getting a lodger and renting out a room
- Checking your eligibility for government grants and loans
- Checking your eligibility for means tested benefits.
- Taking out a personal loan
- Taking on a part time job or returning to work
- Reviewing your existing pensions to withdraw a lump sum
- Utilising savings, investments and drawing on other assets.
- Asking family and or friends for support
- Budgeting and changing your spending habits.
While there are different types of equity release plan to suit different individual needs, it’s not always the right option for everyone.
Before taking out an equity release plan our advisers will go through the advantages and disadvantages of equity release and discuss the alternatives that could allow you to raise the funds you need.
Request a callback from our specialist advisers today to discuss your options in detail.
Remortgaging your home
If you have an existing mortgage, remortgaging may allow you to make your monthly payments more manageable with a better interest rate or product more suitable for later life.
Unfortunately, some retirement incomes may not pass affordability checks which is where alternative options to supplement your retirement income might be a more suitable option including checking your eligibility for means tested benefits and renting out a room.
Whilst the upper age limit will vary between providers, some retirees will find it harder to get a mortgage due to their age, or find they are restricted to a smaller mortgage term. It is important you speak to a specialist to learn more about what options are available to you.
Switching to a retirement interest only mortgage
As you enter retirement, some standard mortgages may not be suitable due to your income or age, however a retirement interest-only (RIO) mortgage can allow homeowners to only pay the interest, sometimes making this a more affordable option. This means making monthly interest payments to maintain a level principal balance. Whilst monthly repayments are lower, you will still need to meet the affordability criteria similar to a traditional mortgage.
Downsize to a smaller or less expensive property
Downsizing or moving to a less expensive property can be a viable option to raise cash, however you’ll need to weigh up the pros and cons.
Downsizing can impact your quality of life, depending on your current circumstances. If you have decreased mobility, moving to a bungalow or adapted home could allow you to move around your home more comfortably. However, if you currently make the most of the space in your existing home, moving to a smaller home might impact your quality of life negatively with a reduction in space.
In addition to your quality of life, downsizing can impact you financially. Whilst downsizing can provide a tax-free lump sum, there are some significant costs involved with moving to be considered including stamp duty, mortgage broker fees if you need a mortgage, solicitor fees, and estate agent’s fees that may outweigh the cash you release from moving.
Getting a lodger: renting out a Room
Under the government’s Rent a Room scheme, you could rent out a spare bedroom in your home to boost your income, with the first £7,500 a year tax-free, or £4,250 each if you are sharing the income with another person. However, please confirm these amounts and take advice with the relevant government authority before proceeding.
Whilst renting out a room can be a flexible and low-risk alternative to equity release, the idea of a stranger renting a room in your home can often be overwhelming which is why it is important to understand the implications of each alternative.
Learn more about the Rent a Room scheme.
Government Grants and Loans
From home improvement grants and loans to extra assistance for vulnerable households to help with winter heating bills, there are a range of grants and loans from local authorities, charities, and home improvement agencies to help struggling homeowners.
If you are looking to raise funds for something specific such as adapting your home to allow you to live there longer or extra help to heat your home, there may be assistance out there to help you. It’s important to check the terms and conditions, and eligibility criteria closely if you choose to proceed with any grants or loans.
Find out more about grants to help heat your home.
Check your eligibility for means tested benefits
Did you know you may be eligible for financial help with state benefits? These benefits can provide ongoing money to help top-up your income as you enjoy your retirement.
Whether you want to find out what benefits may be available to you, or take a closer look at your existing claims to ensure you are receiving your full entitlement, you can check your entitlement through the Government benefit calculator.
Personal Loans
If you’re looking to raise some funds with the intention of repaying it, a personal loan could be an alternative to equity release you may wish to consider.
Whilst a personal loan is not secured against your home, you will need to pass an affordability check as you will be required to make repayments towards the loan. If you have the disposable income and want a short-term loan, a personal loan might be an option to consider. However, it is important you understand the implications of a loan on your personal circumstances, the risk involved, and the pros and cons compared to other options.
Returning to work or getting a part time job
If you are looking to supplement your retirement income, returning to work, even on a part-time bases, can help you increase your monthly income. Returning to work can not only bring in extra cash to help fund your goals but offer you a way to get and about in the community and meet with friends.
Whilst this can help you boost your income without incurring any additional debt, it is important to note this could have an effect on your entitlement for means tested benefits, including pension credit, and might not be the most suitable option for health related reasons if you have limited mobility or any health conditions.
Reviewing your existing pensions
If you are looking to raise a specific lump sum to fund a particular goal, withdrawing from your existing pensions may be beneficial. It is important to understand the implications of withdrawing from your pension including any tax you might need to pay and the effect it might have on your pension pot in the future.
If you are looking to receive a regular income, withdrawing a lump sum from your pension might not always be the best choice. It is important to seek advice before withdrawing from your pension savings, please contact an appropriate adviser or ask us about our pension advice service.
Utilising existing savings, investments and assets
If you have savings or investments, you can draw money from, this is often a popular choice to help raise the funds retirees are looking for without relying on external sources.
Whilst utilising existing savings and assets can be beneficial; you’ll need to consider the impact of these options on your future. Withdrawing from any savings pot may reduce the amount you can rely on in the future and the earning potential from interest rates. If you are considering selling assets to raise the funds you are looking for, you will need to consider if you will need to pay any capital gains tax and if you currently rely on the assets in your daily life such as cars.
We will always recommend speaking to a financial adviser to discuss your financial goals and the implications of any options presented to you. Please contact an appropriate adviser or ask us about our financial advice service.
Asking friends and family for support
We recommend discussing your financial situation with family or friends but understand this can sometimes be difficult. If your loved ones are able to help you raise the funds you need, asking family and friends for financial support can often be less costly than a traditional loan.
Budgeting and Changing Spending Habits
Budgeting and changing spending habits can be an effective way to save money and reduce the need for equity release. By making small changes and setting your own rules to change your spending habits, you can free up more money in your budget to cover expenses and achieve your financial goals.
Some of the ways you can improve your spending habits include:
- Tracking your expenses
- Creating a budget
- Cutting back on non-essential spending
No obligation equity release advice
Equity release is a significant financial decision that should be accompanied by professional advice which is why it is important to consider if any alternatives are suitable for your circumstances.
At Bower Home Finance, our specialist equity release advisers are here to help you explore your options and help you decide if equity release is the right option for you, or if an alternative is better suited to your circumstances.
Request a callback to book your no obligation consultation with one of our advisers today or use our free online equity release calculator to find out how much money an equity release plan could provide you.
