Alternatives to equity release

Alternatives to equity release worth considering

Written in line with our editorial policy.

The average home in the UK has soared in value over the last decade, providing homeowners with more equity in their homes to unlock. It’s welcome news for those seeking a cash boost in later life, including new and existing equity release customers. Of course, a plan isn’t right for everyone and one of the alternatives to equity release may be better suited to your needs.

In this article we will discuss the main equity release alternatives to help you decide what might work best for you, including:

• Using your savings
• Selling your assets
• Accessing grants
• Checking your benefit entitlements
• Remortgaging
• Retirement Interest Only (RIO) Mortgages
• Downsizing
• Asking family and friends
• Take in a tenant or lodger

What is equity release?

Before we discuss the alternatives to equity release, a quick summary of it might help you to compare your options. A lifetime mortgage is the most common form of equity release. It is a secured loan against your home, which is usually repaid when you pass away or move into long-term care.

Plans are available to over 55s and the money you unlock can be spent however you wish, once any mortgage or other secured loans are first settled. There are no mandatory monthly repayments to make as the interest is added to your loan amount each month. You can reduce or prevent the interest that accrues by making voluntary payments.

If you are considering a plan then you’ll need to understand the pros and cons of equity release. For instance, you can spend the money however you wish but a plan will reduce the amount of inheritance you leave. There are many other advantages and drawbacks to think about. You can read more about the various equity release pros and cons here.

Alternatives to equity release

If you do decide to find out more about a plan, our selected advisers won’t just discuss equity release with you. They will also look at the equity release alternatives to make sure there isn’t a more suitable way for you to address your financial needs. Here are just some of the options you may have available to you…

Use your savings

If you have enough savings tucked away, you may find it more cost effective in the long run to access these as an alternative to equity release. The main benefit is that you will avoid having to pay interest on any loan you would otherwise take out. Plus, if you need access to further money down the line then your other options will still be available to you.

Of course, you may prefer to keep your nest egg untouched so it’s there should you need it in the future. Your car breaking down or the boiler needing repairs, for instance, can cost hundreds or even thousands. If this is a concern to you, perhaps another of the alternatives below is worth a consideration.

Good if: You are happy to access savings you’ve put away for a rainy day.

Sell assets

If you don’t need to raise tens of thousands of pounds, a good alternative to equity release could be selling some of your belongings. Selling your assets doesn’t have to mean parting with your home or your family’s precious heirlooms. Many of us are guilty of hoarding away a whole host of things in the loft or garage. Now could be the perfect time to have a good clear out and make some money in the process. 

Local car boot sales and free online selling sites such as Vinted are ideal for smaller items and clothes. For your larger or more expensive items, you may want to speak to a local auction house or independent specialist. You may be surprised at how much cash you can raise – and how much space you free up!

Good if: You have a number of possessions, furnishings or valuables that you don’t use or need anymore, especially vintage items that would appeal to collectors.

Accessing grants

Some people look into equity release as a way to fund adaptations and improvements to make their home more accessible. So before you spend thousands installing a wet room, make sure you look into grants and charities who could help first.

Here are some helpful websites you can visit for more information:

Disabled Facilities Grants

Website: https://www.gov.uk/disabled-facilities-grants

How they help: You may be able to get a grant from your local council if you’re disabled and need to make changes to your home. Larger adaptations they assist with include stairlifts, downstairs bathrooms and providing a heating system suitable for your needs. They also assist with widening doors and installing ramps. Smaller adaptations might include grab rails, safer steps and security lights.

Independence at Home

Website: http://www.independenceathome.org.uk/

How they help: This charity provides grants for people with a long term illness or disability who need financial help towards the costs of making adaptations to the home.

Home Improvement Agency

Website: https://www.findmyhia.org.uk/

How they help: You may be able to find other schemes that will help you with the cost of adaptations by speaking to your local Home Improvement Agency. They can also help you make your home more energy efficient and provide help with home repairs. They even offer welfare and benefits advice to make sure you are getting everything that you are entitled to.

Good if: You want to make home adaptations due to health issues or disability.

Check your benefits entitlement

Have you checked to make sure you are receiving all the support that you are eligible for from the government? So many people miss out on benefits they are entitled to, perhaps because they don’t know how to check or are embarrassed to ask. With a small amount of form filling you might be able to boost your income for life, so don’t miss out! 

Start by visiting www.entitledto.co.uk to quickly and easily check your entitlements and make sure you aren’t missing out on money that should be in your pocket. 

Pension credits, for example, are worth an average of £3,300 per year according to the Money Saving Expert, but you do have to claim for them. Once approved, you are then eligible for other money-saving benefits too. Perks include a free television licence, the warm house discount, council tax reduction, free dental treatment, boiler grants and much more! Use the online pension credit calculator here to find out if you’re eligible and get the ball rolling.

Good if: You aren’t sure that you are claiming everything that you are entitled to and would benefit from an increase to your monthly income.

Remortgaging

Do you have an existing mortgage? If you are looking to carry out home improvements, pay off a credit card or buy a new car, then another alternative to equity release is a remortgage. 

Your existing lender could be a good place to start as you may be able to increase your loan size without having to remortgage. If your mortgage is up for renewal soon, an independent mortgage adviser will be able to search the market for the best deal for you.

Of course, the downside to a remortgage is that you’ll likely see an increase to your monthly mortgage payments which could eat into your disposable income. If your finances couldn’t cope with the extra pressure, it may not be the right option for you right now. You may also find that remortgaging is an impossibility in retirement due to the affordability checks carried out. It is perhaps why paying off the mortgage is one of the most popular reasons for equity release.

Good if: You have an existing mortgage and don’t mind an increase to your monthly repayments, a longer term, or both.

Retirement Interest Only (RIO) mortgages

Another alternative to equity release is a Retirement Interest Only (RIO) mortgage. You can unlock a lump sum from your home and make monthly repayments to service the interest. The capital is repaid when your plan comes to an end, usually when you pass away and your estate settles the loan.

A RIO can run for the rest of your life as there is no fixed term. However, you will need to keep up with the interest payments for the life of your plan. If you default on your RIO mortgage payments, you could lose your home. If this could be a problem for you, you may want to avoid this option.

If you do consider a RIO then it might be worth comparing it directly with an interest-only equity release plan. With this type of equity release, if you choose to stop making your monthly interest payments in the future, your plan will simply switch to a standard lifetime mortgage. At this point the interest ‘rolls up’ each month and adds to your total loan amount. 

You may also want to factor in how much you can unlock from your home with a RIO vs equity release. Read ‘how much can I release’ to find out how much you could potentially access with equity release to help make your comparison. We’d also suggest understanding the pros and cons of equity release vs an RIO.

Good if: You want to unlock a cash lump sum from the equity in your home and do not mind taking on the monthly repayments to service the interest.

Downsizing or moving to a cheaper property

If your home has risen in value then you may be able to unlock some of your equity by moving to a smaller home or a less expensive area. 

Downsizing is a popular alternative to equity release as you can use the opportunity to find a new home that considers your later life needs. You may choose to move closer to your children, or you might want a bungalow with a downstairs bathroom. If you do decide to go ahead, you will need to consider costs which will reduce your total sale proceeds, potentially including removal vans, legal fees, estate agency fees and stamp duty. 

Of course, selling the family home can be an emotional upheaval and potentially quite stressful. After years of living there and watching your family grow up in it, you may be very attached to your home and imagine staying there all your life. This is one of the reasons you may prefer equity release as a way to raise cash AND stay in your home for as long as you wish.

Good if: You live in a large house or an affluent area and are happy to move to a less expensive home to access your equity.

Ask family and friends

Many of us can feel uncomfortable with the idea of asking our loved ones if we can borrow money. But if your family were in need of financial support to get them through a difficult time, wouldn’t you want them to come to you before making any big decisions?

Starting a conversation about your financial situation might lead to an offer of help that could make all the difference. If they don’t have the money available themselves, they may be able to help you explore your equity release alternatives or support you in taking out a plan if you wish. A good starting point is our equity release calculator, which will give you an idea of how much money you could unlock. This might help you consider your options more thoroughly.

As previously mentioned, arranging an equity release plan will reduce the value of your estate and the amount of inheritance that you leave for your loved ones. But by arranging a short-term loan from your loved ones, you could enjoy an interest-free form of lending that could potentially save both parties money in the long-term.

Good if: You have family or friends who have some money set aside that you could use to meet your financial goals.

Take in a tenant or lodger

If you have a spare room in your home and want to make some extra cash, you might want to consider letting it out. To help the housing shortage, the government is encouraging homeowners with a spare room to sign up to the Rent a Room Scheme. 

This equity release alternative enables you to earn up to £7,500 per year by letting out a furnished room in your home. You can let out as much of your home as you want. If you do decide to take on a tenant or lodger, you may want to ask your family to help you vet your applicants. Opening your home up to a stranger is a big decision, so you should be sure of your decision. 

Reading up on the scheme and making yourself aware of your rights is a good starting point. Remember, if you still need a cash boost down the line, equity release could still be an option for you.

Good if: You have a furnished spare room in your home and don’t mind opening it up to someone who is looking for a room to rent, rather than a whole house.

Making the right decision for you

After considering the main equity release alternatives, we recommend familiarising yourself with the pros and cons of equity release to help weigh everything up. There’s a lot to think about when unlocking money from your home and it certainly isn’t something you should rush into.

Of course, nothing compares to speaking with a qualified adviser, so after considering the above alternatives to equity release, now might be the ideal time to speak to someone. 

Equity Release Wise can connect you to one of our selected advisers who can help you make the right decision. If there is a better alternative to equity release, they will always tell you. Call free on 0808 178 3055 or request a call back at a time convenient to you.