What Are the Alternatives to Equity Release?

Equity release can be a good option for those looking to access cash in later life; although, it may not be the best option for every situation.

Equity release is an option available for those over the age of 55 looking to free up some equity (cash) from their home in order to use for other expenses, either as a lump sum, several smaller payments or a combination of both.

Why Do People Use Equity Release?

People use equity release when they want immediate access to funds without the need to remortgage their property or downsize. There are many reasons why people would want to free up these funds, which often includes projects such as home improvements, providing money for their families or large investments such as a holiday – and your lump sum is completely tax-free.

Equity release can be a good option for those looking to stay in their homes and free up a large amount of tax-free cash without the need of monthly repayments. However, depending on future financial responsibilities, interest rates and how much a person is hoping to leave behind for their family in the way of inheritance, it may be worth exploring alternative options. 

The market is resilient with over 100 different equity release products available in the sector, with several options available including interest-only, drawdown and schemes to put money aside for inheritance.

What are the Alternatives to Equity Release?

• Downsizing

When entering the next stage of their lives, many individuals choose to downsize their homes. With children no longer living at home, this is often a logical next step to free up money as well as choosing a home which is more size-appropriate. This, in turn, could save money on utility bills.

Moving to a cheaper property could release a lump sum from your home before having to consider equity release.  This may be a better option than using your home as collateral for a lifetime loan, especially if you want to move to a smaller property anyway. 

However, the moving process does incur expenses of its own such as stamp duty, surveyor fees and solicitor costs meaning that the final amount of money that you are able to release is less than expected.

Additionally, it can be a big upheaval to move house and may mean packing up and leaving a home or area that has invaluable sentimental value.

• Money from Flexible Pensions 

Since 2015, pensions have had more flexibility allowing you to use it as a retirement pot from which you can withdraw money. Flexible pensions allow you access to 25% of your pension, tax-free, from age 55 and upwards. Like equity release, this can be done as a lump sum or gradually in several withdrawals.

This relies on being practical about how much you are withdrawing each time and for how long you plan on making the withdrawals.

• Unsecured Loans

An unsecured loan can enable you to borrow between £25,000 and £50,000 without the need to use your house as collateral. The repayment will need to be made over a period of one to seven years, which although shorter than the strategy of a mortgage or equity release, could potentially save money in the long term. Interest rates will depend on your credit history as well as how much you are looking to borrow.

• Retirement Interest-Only (RIO) mortgages

For older homeowners looking to release equity without huge interest rates, these mortgages are available for those over 55 who are unable to access a standard mortgage deal.

However, before choosing this option it is worth assessing how affordable it is in the long-run and it is often advisable to take out a life insurance policy alongside this method.

• Existing Cash and Investments

Before opting for equity release, you should first consider your existing cash funds or investment portfolio. If your investments are largely growth-focused, this money could be redirected towards funds and shares with produce income. This is a good option for those looking for economic flexibility without being ready to downsize their homes or put their property up as collateral.