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alternatives to equity release

This article was last updated on 1 October 2020.  

10 Alternatives To Equity Release in 2020

Equity release is growing in popularity and particularly as a way to pay for care in later life. Any product that enables the release of equity is regulated by the financial conduct authority, giving you security and peace of mind. 

Many homeowners are using their houses as a ‘cash machine’ to help fund their retirement. Statistics show that schemes which allow older property-owners to unlock the value tied up in their properties are enjoying record take-up. 

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A record amount of £1.02 billion was unlocked by homeowners in Q3 2018, up from £195 million (24%) in the same period of 2017. Additionally, homeowners aged 55 and over withdraw about £11 million of property wealth every day to support their finances.

But what is equity release, and is it a good option to fund your retirement needs? Here we explain what releasing equity is, the types of plans available and differences between them, and the benefits and drawbacks for your consideration.

10 alternatives to equity release

  • Downsizing
  • Using credit cards
  • A Retirement Interest-Only mortgage
  • Remortgaging
  • Borrowing money
  • Using your savings and investments
  • Renting out rooms 
  • Financial support from friends and family
  • Claiming grants and benefits
  • Budgeting

You can read more about these options below.

What is Equity Release?

Equity release allows you to access wealth held up in your household.

You can do this while continuing to live in the house until you die or move out permanently. This scheme is available to people aged 55 and older, and you don’t need to have fully paid off your mortgage to do this.

Here is a short video explaining more about what equity release is.

Alternatives to Equity Release

If you’re looking for ways to boost your income later in life, equity release products are becoming an increasingly popular option. But before you go ahead with this option, it is worth considering the pros and cons described above and exploring the differences between the alternatives.

Here are 10 other forms of assistance you may want to consider:

1. Downsizing

When the kids have grown up and moved out, you might have more space in your home than you need. Selling your home and moving to a smaller, less expensive place of residence can generate a lump sum of money.

While downsizing is cheaper and more flexible than some other methods, it comes with some disadvantages. If home prices are falling at the time you are selling your home, you might end up with less money than you hoped. You will also need to pay an estate agent.

Additionally, it could take some time to find a buyer and a good place to spend your golden years. The fact is, downsizing can be costly and have substantial emotional impacts.

These include moving costs, estate agent’s fees, legal fees, stamp duty, buying new furniture, redecorating to suit your tastes, leaving your long-standing family home and losing support from family and friends in the community.

2. Credit cards

If you only need a relatively small amount but quickly, then a credit card may be a great option. Low interest rates and a battle for clients between credit card providers mean there are great deals available on the market.

For example, the Lloyd Bank Platinum Low Rate credit card offers an interest rate as low as 6.45% depending on your circumstances. Additionally, it has an annual fee of £0, and when you make a balance transfer within the first 90 days of opening an account, you get a no-fee deal.

The best option when opting for credit cards is to go for those with a low interest rate; however, this option is more suitable for borrowing smaller amounts of money.

3. Retirement Interest Only mortgage (RIO)

Another alternative to equity release is to look at other types of mortgages. One sort is an RIO, which is a great option as it allows you to borrow more than you would with equity release.

With retirement interest only, you make interest repayments each month until you die or move into residential care. The lender gets their loan repaid when the house is sold.

However, before going down this route, applicants need to prove they can afford the monthly interest payments, which is not required when applying for equity release. Another difference between RIO and equity release is that RIO has lower interest rates, so beneficiaries are likely to receive a larger amount of inheritance money.

4. Remortgaging

Another option is to change mortgage providers before completion of your current mortgage term. Remortgaging with a lower interest rate and better terms can reduce your monthly payments, freeing up cash for other expenses such as paying off debts or home improvements.

It’s also a great way to release some cash built up in your estate.

Before you start shopping for mortgage rates and lenders, decide on what product you want – for example, a fixed rate, variable rate or tracker. This will enable you to find the best offer. 

Then speak to a lender directly, and use a comparison website or the best-buy tables in the financial pages of newspapers to find the best deals. If you don’t want to do the legwork, a mortgage broker can be valuable.

This is also a good alternative to selling your house fast.

Try out our free equity release calculator – see how much money you could release

equity release alternatives

5. Borrow money

Even if you’re retired, you can take out a personal loan against your residence. Borrowing via a personal loan will help you avoid the high fees associated with equity release plans.

Additionally, loans can be arranged for short terms, as and when you need money, unlike equity release, which is a lifetime commitment. 

This solution has some downsides, though. Interest rates on personal loans are more expensive than mortgages. If you’re unable to keep up with the monthly payments, you risk having your property repossessed. Therefore, before opting for this option, make sure that you have enough income to make repayments. Speak to an expert adviser, who can give you tips and assess your personal finance. 

6. Use savings and investments

Most retirees have some form of savings or investments tucked away for a rainy day. If you have any built-up savings or investments, consider using those to achieve your financial goals instead of using equity release.

However, before cashing in on any investments, be sure to consider any tax implications or better yet seek professional advice from experts.

7. Rent out a room

If your home has more space than you need, consider renting out a room.

Under the ‘Rent a Room’ scheme, you could receive up to £7,500 per year for letting out furnished accommodation to a lodger.

Leasing rooms is a great way to increase your income without moving out of your current residence.

However, having a tenant living with you is not the best decision for everyone. 

8. Get help from your family

You could ask for help from your relatives.

While this may not be an easy subject to bring up, they may prefer to help you than allow you to sign up to equity release deals which could leave them with little or nothing to inherit.

Furthermore, if the funds are necessary for your health, they might be more than happy to help.

9. Claim benefits and grants

Another alternative to equity release is to claim all benefits and local authority grants that you are entitled to from the government. These include borrowing for home improvements or for conversions to deal with your disability. To find out what benefits you might be able to claim, visit the Gov.uk Benefits Calculators

Book an appointment to speak to an equity release specialist

 


10. Budgeting

If you’re currently not living within your means, look at your income and outgoings to see if any things are costing you unnecessary money.

The equity release alternative you pick will depend on your current financial situation, the amount of money you want to raise and how quickly you want to raise it. Just make sure to talk to an expert financial adviser before making a decision.

Types of Equity Release

While there are many products available on the equity release market, there are two main ones, both regulated by the financial conduct authority (FCA):

Lifetime mortgages

With lifetime mortgages, you borrow money against your home’s value. You receive a one-time amount, and you still remain the sole homeowner. For many, this option gives a more pleasant experience than others.

This equity release scheme has evolved over the years to provide flexibility in the way borrowers access their money and make payments. Consequently, different types of lifetime mortgages have emerged. To help you make your choice, we have compiled some information below that gives detail on the differences between them.

These include:

  • Drawdown lifetime mortgages – a drawdown lifetime mortgage allows you to borrow extra cash when you need it up to an agreed total amount.
  • Enhanced mortgages – these are unique plans for older homeowners with medical conditions. 
  • Protected mortgages – a protected lifetime mortgage guarantees an inheritance entitlement for your children and family when the scheme comes to an end.
  • Interest payment plans – these schemes allow you to pay off some of the interest that builds up over the course of your loan. With this equity release loan, you make a commitment to regular Interest repayments. disadvantages

You can use an equity release calculator to see how much money you could borrow, based on your age and personal details.

Here is a short video that explains more about how lifetime mortgages work.

is there a better alternative to equity release?

Home reversion plans

Available to UK homeowners aged 65 and over, a home reversion plan involves selling part or all of your property in exchange for a regular payment or a lump sum. Reversion companies pay below the market value because you get to stay in the house rent-free until you move out permanently or die.

 

Can you lose your house with equity release?

This is a common question asked, and the answer depends on the type of plan you decide to take out. In the case of a lifetime mortgage, then you remain the homeowner. However, if you choose a home reversion plan, your provider owns all or part of your house. You do still have a lifetime lease, though. 

Is there a better alternative to equity release?

Equity release schemes can seem appealing, but are they the best way to raise money?

Here is a short video that runs through the pros and cons of equity release. There are also plenty of guides out there, discussing the different choices and factors to consider. With such a range of equity release products out there, though, we recommend having your questions answered by a specialist before making any final decisions.

Below, we weigh up the advantages and disadvantages of equity release.

Advantages

  • No need to move – for most older people, the most effective way to bolster their pension income is to sell their property and move to a smaller, less expensive, location. The sale of your property can then provide a retirement income.
  • You don’t have to make monthly payments – equity release schemes do not cost you anything aside from advice or set-up costs.
  • You can spend the money on whatever you want – you can use the loan for whatever you like!
  • Flexibility – with equity release schemes, you can take money against your property’s value when you need it.
  • No negative-equity guarantee – most equity release providers are Equity Release Council members and abide by the council’s rules, which includes the no negative equity guarantee. This rule ensures that, no matter what happens to the housing market, your loan amount plus interest never exceeds your home’s value. This condition also ensures that no relative is under the obligation to pay the remaining debt owed. 
  • Low rates – Equity release interest rates can be as low as 3.60% and are usually fixed over the life of the loan.

Disadvantages

  • Interest charges can mount up – the compounding interest means that the size of your debt can increase very quickly with this type of loan
  • Your beneficiaries could get a smaller inheritance – when you die or move into residential care, the property is sold, and the lenders are repaid first. Only the remaining percentage of the ownership will go to your family as an inheritance.
  • May affect entitlements to certain state benefits – proceeds from the equity release will increase your savings or income, and this could affect your entitlements to state benefits such as dentistry, council tax, and pension credit tax. This is something you might want to talk with advisers about.
  • No exit – equity release plans are designed to run for a lifetime, or until you move to a care home. Should you want to make early repayments, then a penalty as high as 25% of the initial loan amount could be charged by the lender. This can make it expensive to switch to a cheaper deal, and causes issues for many.
  • Expensive setup costs – you may have to pay arrangement fees, solicitors fee and fees for professional advice which can substantially reduce the amount you receive.

Once and done – after you sign up to an equity release plan, you won’t be able to take other loans using your property

Would you like some help to see whether equity release is the right option for you or to find out what the latest deals are?

You can either book an appointment using the calendar, leave your contact details or call us, via Key Equity Release directly on 0800 953 3792 to compare lifetime mortgages.

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Would you like some help examining equity release?

We work with with Key equity release for them to bring you their market leading equity release support. Through a free consultation they can help you decide what the best options could be for you. 

If you would like some help, please leave your details below and someone will be in touch.

Or you can call Key directly on 0800 953 3792

More interesting articles about Equity Release

how does equity release work

In this article, we answer 22 important questions that you may have about equity release, including what it is, how it works and what the best interest rate deals are.

Alternatives to equity release

Equity Release is not for everyone.  In this article we look at the alternative options that you can consider if you need access to money in later life to pay for care, top up your pension etc.  

Lifetime Mortgages

A lifetime mortgage is the most popular type of equity release scheme, as it’s the most flexible and versatile option. The amount you receive depends on your property value. 

Pros & Cons of Equity Release

In recent years equity release has become a very popular option. This article looks at the pros and pitfalls of equity release and what you need to consider before taking it out.

How much can you borrow

How much you can borrow from equity release varies depending on your age and house value.  In this article we look at how much you could borrow from your  home.  

Drawndown Lifetime Mortgages

A drawdown mortgage is a type of equity release scheme, offering greater flexibility and freedom compared with traditional plans. In this article we explain all that you need to know.

Equity Release Calculator

An equity release calculator will give you a good indication of what you can borrow from your home.  This article explains how the calculator works and also shows you what you can receive.

what happens when you die

One of the big concerns that people have about equity release is what happens to their home and borrowings when they die.  In this article we explain everything you need to know.

Home Reversion Plans

A home reversion plan is primarily suited to individuals over 65 looking for a solution to their finances.  This article explains all you need to know.

Meet the author

Rob Atherton

Rob Atherton

Rob writes and edits the content produced by the rest of the team. He has a degree in History from Leeds University and has producing, reviewing and editing the site since 2016

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Recent reductions in interest rates mean that there are some great equity release deals available. Speak to a specialist.

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