Alternatives to Equity Release

13 Equity Release Alternatives You NEED to Know
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

13 Alternatives to Equity Release Revealed. Discover if There’s a Better Option for You, or if Not, Now You Can Unlock Equity With Confidence.

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13 Top Alternatives To Equity Release
TABLE OF CONTENTS

Are you considering an equity release loan to supplement your retirement income, but you’re slightly unsure?

Equity release is a life-long commitment and you must explore the alternatives to equity release before making any definite decisions. If not, releasing equity could be the biggest mistake of your life!

We’ll help you discover:

  • Ways to supplement your pension income.
  • An alternative way to release equity from your property.
  • If there’s alternatives you can consider without monthly payments.

While our team at EveryInvestor supports the use of equity release if done correctly, we always encourage our clients to first look at all the alternatives. Therefore, we researched the top 13 equity release alternatives in Jan 2022.

Here’s what we’ve found!

Here Are the Top Alternatives To Equity Release

What is Equity Release?

Equity release schemes refer to a secured loan against your home designed for older homeowners. With these plans, no loan or monthly interest repayments are required in your lifetime. Instead, the loan and compound interest1 is repaid, usually from the sale of your home, when you pass away or move to long-term care.

Full article: What’s Equity Release?

how does equity release work 1

How Does Equity Release Work?

Equity release works by your home being collateral against your loan. You’ll need to use a portion of the cash lump sum to cover any outstanding mortgage balance, and then the balance can be used any way you wish.

With no monthly repayments, releasing equity can come in the form of a lump sum, a drawdown facility, a combination of both, or a monthly salary. Different equity release providers offer plans with unique features, but a financial adviser will guide you through your options.

Try our equity release calculator to see how much cash is tied into your home. Just enter a few small personal details here.

is equity release the right thing for me

Types of Equity Release

Looking to potentially raise money through an equity release scheme?

Your equity release specialist will tell you about a lifetime mortgage and a home reversion scheme.

Here’s more information!

how much does equity release cost

A Lifetime Mortgage

Lifetime mortgages are the most popular type of equity release. With lifetime mortgage deals, you’ll unlock cash from your property, but retain 100% ownership. You’ll then allow the interest to roll up, to be paid at the end of the loan term.

However, there are plan options where you can repay the interest monthly and up to 10% of the loan annually.

The most popular lifetime mortgage plan is a drawdown lifetime mortgage. Your money goes into a drawdown facility, to be released whenever you need to use it. You can usually take out £5,000 at a time, and you’ll only pay interest on the money you withdraw.

Find out more: What’s a Lifetime Mortgage & How Does it Work?

what's a lifetime mortgage

A Home Reversion Scheme

A home reversion is the second most popular scheme on the equity release market. This equity release product gives you the opportunity to sell your home below market value, in exchange for tax-free cash. In return, you can stay in your home, rent-free, for the rest of your life.

When you die or move to long-term care, your home is sold and the lender will receive their portion, with your family taking any additional balance.

Discover more: What’s a Home Reversion Scheme & How Does it Work?

reviewing your equity release plan tips for retirement

Do Monthly Interest Payments Make Equity Release Products More Affordable?

Yes, monthly payments on your equity release plan will leave your family with extra cash at the end of your plan. While interest rates are at an all-time low, regular interest payments will stop the interest from compounding.

Without these payments, your interest will compound quickly, likely using up all or most of the value tied into your home.

Interesting read: Equity Release Interest Rates Available in Jan 2022

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13 Alternatives to Equity Release

Does equity release sound like a great option for you and your family? Even so, you must consider these alternatives to equity release before making your final decision.

With that, here are the 13 most popular alternatives to equity release in Jan 2022.

Alternatives To Equity Release

1. Sell Assets

Selling assets2 is a great way to raise funds for your retirement. If you’re experiencing financial difficulty but you have valuable jewelry, antiques, or expensive cars, selling your assets is a fantastic way to give you and your partner the retirement you desire.

Out with The Old & In with The New – Equity Release

2. Remortgage Your Home

Remortgaging involves transferring your existing mortgage to a new agreement and using the same property as security. You can remortgage with the same mortgage providers or a different firm, and you won’t be moving home; your new mortgage will still be secured by your present home.

If you’re considering this option, seek professional advice who will review your existing mortgage and look at current interest rates. Note that you’ll still have to repay your mortgage monthly and some firms won’t give traditional mortgages to older borrowers.

Benefits Of Taking A Lump Sum

3. Get Help from Family

While equity release plans are a great way to get extra cash, it’s perfectly acceptable to get financial support from your loved ones. If you have children in a good financial position, they’ll likely be honoured to assist you.

Just be sure to clarify whether it’s a loan or a gift to avoid awkwardness at a later stage.

You Can Lean on Family or Friends

4. Downsizing

As one of the most popular alternatives to equity release, downsizing to a cheaper property can save you a ton of equity. You’ll likely receive a balance from the sale of your home and your maintenance and municipal costs will decrease. No more spending money on huge gardens and cleaning a large space.

However, don’t forget that moving does come with emotional and physical costs, plus fees like estate agent fees.

are you wondering if it's possible to sell your house with equity release

5. Means-Tested Benefits & Grants

Explore your eligibility for local authority grants and means-tested benefits. While equity release will give you more money, if you cut down your costs, you may be able to live off these grants, leaving your children with an optimal inheritance.

NB: Equity release will affect your qualification for means-tested benefits from local authorities.

Interesting read: Is Releasing Equity a Good Idea?

Tax Free Cash

6. Rent Out a Room

To achieve your financial goals, rent out a room in your home as furnished accommodation. As an alternative to equity release, you can add your spare room on Airbnb3 as a part-time job, or participate in the government’s Rent a Room Scheme4 where you can earn up to £7,500 per year.

Different Rates for Different Types of Property Transactions

7. Budget to Reduce Costs

The average UK citizen spends a total of £74.80 on holidays, tickets, subscriptions, pets, and other recreational activities and purchases. Take a look at what you’re spending monthly and see if there are ways to cut costs. perhaps you have unnecessary subscriptions that you don’t use?

Conquer Your Budget

8. Get a Part-Time Job

Getting a part-time job is a great way to save money and keep yourself busy in retirement. If you have capital, you might want to consider investing in a business or even opening your own small business.

Alternatives To Equity Release

9. Rely on a Pension Plan

If you have a private pension, it’s a great alternative to equity release. Workplace pensions and personal or stakeholder pension plans are a method of securing additional income in retirement. If you’re over 22 and under State Pension age, your employer must enroll you in a workplace pension plan if you earn more than £10,000 per year.

Should I commute part of my pension?

10. Credit Cards

Credit card providers might give you credit, but you should be wary of getting yourself into credit card debt. Furthermore, you must look at the interest rate the provider is offering.

A credit card enables you to spend up to a pre-determined amount. You will be charged interest on what you have spent each month. It is advised that you attempt to pay off your balance in full each month. However, you must pay at least the minimum amount due.

The minimum payment is set by your credit card company, but it must be at least 1% of the outstanding debt, plus interest, any default costs, and the annual fee (if there is one). It will usually be between 3% and 5%. It might also be defined as a pound value of at least £5.

Alternative to Funeral Planning

11. The Retirement Interest-Only Mortgage

A retirement interest-only mortgage is the newest retirement mortgage on the market. Like with equity release, an RIO mortgage term is for life. Retirement interest-only mortgages require the homeowner to pay off the monthly interest. If not, you can risk foreclosure.

Try our FREE retirement interest-only mortgage calculator now!

Equity Release Pitfalls

12. Borrow Money

You might want to borrow money by taking out a personal loan. Before the end of the loan term, you must pay back personal loans in full, but there may be an early repayment charge of about one to two months’ interest rates. Any costs and how they’re calculated should be outlined in your loan information and agreement, so you know what to anticipate if you pay back early.

Also consider if you want to opt for unsecured loans (no collateral required), or secured loans, where the collateral is compulsory.

Essential information: Average Personal Loan Rates Have Gone Up

Job Interview

13. Use Savings & Investments

According to statistics, only 6.50% of Brits have no savings at all. In a Raisin poll5 of over 2,000 people in the United Kingdom, it was determined that the average savings per person in 2020 was £9,633.

If you have savings available, you should definitely consider using those before releasing the equity from your home.

Letting Your Investments Grow

Can I Lose My House with Equity Release?

No, you can’t lose your house once you’ve unlocked an equity release product since no loan or interest repayments are required in your lifetime. Furthermore, one of the agreements made with your equity release lender, as per a ruling by the Equity Release Council, is that you can live in your home for the rest of your life.

Interesting read: Is Equity Release a Good Idea in Jan 2022?

Is It Better to Sell Your Buy to Let as a Rented or Unoccupied Property

Is There a Better Alternative to Equity Release?

Yes, a better alternative to equity release is usually downsizing. However, leaving your beloved family home can be emotionally difficult, and packing up and moving takes a lot of work. However, a smaller house can make life much easier.

Get in touch with a financial adviser who can help you determine the best course of action.

Must discover: Why Get Equity Release Advice?

equity release1

What are the Advantages & Disadvantages of Equity Release?

The biggest advantage of equity release is that you have the opportunity to access tax-free cash. The greatest disadvantage of equity release is that compound interest can roll up quickly, using the full value of your home.

Here’s more!

Advantages of discretionary trusts

Equity Release Advantages

  • Access tax-free cash.
  • You can use the money in any way you wish.
  • Interest rates are lower than ever.
  • It’s regulated by the Equity Release Council.
  • The ‘no negative equity guarantee’ means that you’ll never owe more than the sale value of your home.
  • You can live in your home, rent-free, for the rest of your life.

Equity Release Disadvantages

  • It can be difficult to move home.
  • You’ll decrease your inheritance.
  • Your benefits might be effected.
  • You might be subjected to early repayment charges.
  • There are fees involved.

Common Questions

Is Selling Assets As Safe An Alternative to Equity Release?

What's The Catch With Equity Release Alternatives?

How Can I Get The Equity Out Of My Home Without Selling It?

Can I Use Other Ways To Get Extra Money?

Disadvantages of Ethical Investment Funds

In Conclusion

Whether it’s moving to a cheaper property or getting a part-time job, you must discuss all these alternatives to equity release with your financial adviser.

Considering a lifetime mortgage? Try out our FREE lifetime mortgage calculator now!

How Much Can You Release?

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

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Alternatives To Equity Release

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Lisa Is Our Resident Insurance Expert. She Knows How Important It Is to Be Ready for Any Scenario, Especially When a Family Member Is Involved. Nobody Likes Being Found Unprepared in a Tough Situation! Lisa Can Find the Best Insurance to Cover Your Every Need, Present and Future.

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Jason Stubbs
Equity Release Expert

Jason Stubbs Is a Specialist in the Equity Release Sector. He Enjoys Helping Older People Who Are Struggling Financially Get Out From Under Financial Pressure.

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Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Mark Patterson
Mortgage Expert

Mark Patterson is a well-known expert in mortgages. He has been working as an expert for over 15 years, and he specializes in the UK mortgage market.
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Katherine Read
Consumer Affairs Writer

She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date

Nicola Date
Writer & Journalist

Nicola is a financial writer for EveryInvestor and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.