Equity release vs downsizing—which is the smarter financial move for retirement? Equity release allows homeowners to access wealth tied up in their property without moving, while downsizing can free up capital and lower living costs.

But which option truly aligns with your long-term financial goals?

In Q4 2024, the equity release market saw over 15,000 customers unlocking £622 million from their homes, marking a 16% increase from the previous year—this growth reflects a rising trend among retirees leveraging their property wealth.¹ However, downsizing remains a popular alternative, offering potential savings on maintenance, bills, and council tax.

At EveryInvestor, we analyse the key benefits, risks, and hidden costs of both options to help you make an informed decision.

Keep reading to explore the best path for your retirement planning...

What Is Equity Release, & How Does It Work in the UK?

Equity release lets UK homeowners unlock cash from their property while still living in it, which is typically done through a lifetime mortgage or a home reversion plan.

Home reversion sees you selling part or all of your home in exchange for a lump sum or regular payments, while retaining the right to live there rent-free; additionally, lifetime mortgages see you borrow against your home’s value, with interest rolling up until repayment upon death or moving into care.

Let's delve deeper into this:

What Does 'Equity Release' Mean in the UK?

Equity release allows UK homeowners aged 55+ to access their property’s value without selling it, proviing a tax-free lump sum or regular payments.

This can help boost retirement income but may result in pitfalls that include the reduced value of your estate and potentially negative impact on inheritance, which is why understanding the long-term effects is essential.

What Are the Key Considerations for Equity Release?

With equity release, you need to be aware of key factors like the potential effect on inheritance and the costs associated with this type of product, like compound interest and early repayment charges. 

These are the important considerations:

• Long-term commitment – Equity release is typically difficult to reverse, so careful planning and professional advice is essential.
• Impact on inheritance – The loan and interest reduce the value of your estate.
• Compound interest – Lifetime mortgages accrue interest over time, increasing the total amount owed.
• Early repayment charges – Paying off your plan early may incur high fees.
• Effect on benefits – Receiving a lump sum or regular payments could affect means-tested benefits.
• Future borrowing restrictions – Once you release equity, you may not be able to borrow more against your home.
• Property value changes – You may miss out on potential house price increases.

Why Consider Downsizing Your Home in the UK?

Consider downsizing your home in the UK as it can offer financial and lifestyle benefits, making it an attractive option and proving to be a practical alternative that preserves more of your estate.

You can unlock home equity, manage lower living costs, and get location flexibility.

Here's what you need to consider:

What Does Downsizing Your Home in the UK Entail?

Downsizing means moving to a smaller, more manageable property, often to reduce costs and improve quality of life.

Many people choose this option to free up home equity, lower household expenses, find a home better suited to their needs in later life, and it can also be a chance to relocate closer to family or essential amenities.

Unlike equity release, downsizing allows you to retain full ownership of your new home while benefiting from financial flexibility.

Why Are More UK Homeowners Downsizing?

Many homeowners downsize to free up money for retirement, simplify their lifestyle, or adjust to an "empty nest."

It can also reduce living costs, making home maintenance easier and more manageable; in fact, Knight Frank reported a significant rise in downsizing interest in 2022, highlighting its appeal as a smart financial move considering the rising cost of living.²

These are some of the common reasons people opt to downsize:

Why Consider Downsizing for Retirement?

As retirement approaches, maintaining a large home may become unnecessary and costly, so considering downsizing to a smaller, more manageable property can free up equity to enhance retirement savings while also reducing utility bills, maintenance costs, and council tax.

This move can provide both financial security and a more comfortable living environment suited to later life.

Is Downsizing the Best Option to Avoid an "Empty Nest"?

Yes, downsizing can be the best option to avoid an 'empty nest'; when children leave home, the extra space can feel unnecessary, and maintaining a larger property may become more of a burden than a benefit.

Downsizing offers a practical solution, allowing homeowners to move into a more suitable space, though the decision depends on personal preferences, emotional ties to the family home, and future lifestyle goals.

How Can Downsizing Help With Financial Considerations?

Downsizing can offer significant positive financial considerations, from reducing mortgage payments and council tax to lowering maintenance and utility costs.

Selling a larger home can also free up a lump sum, which can be used to clear debts, boost retirement savings, or invest in other assets.

For many, this financial flexibility makes downsizing an appealing strategy for long-term financial security.

Can Downsizing Lead to a Simplified Lifestyle?

Yes, downsizing can lead to a simplified lifestyle by reducing the time and effort needed for home maintenance, as a smaller property typically requires less upkeep, which means freeing up more time for hobbies, travel, and family.

With fewer responsibilities and lower costs, many find that downsizing allows them to enjoy a more relaxed and fulfilling lifestyle.

Does Downsizing Reduce the Environmental Footprint?

If you are eager to leave a reduced environmental footprint and help preserve the planet, downsizing could be a way of achieving this goal. 

That is because smaller homes generally consume less energy for heating, cooling, and lighting, thereby reducing the homeowner's carbon footprint and contributing to a more sustainable lifestyle.

The Pros and Cons of Downsizing Your Home in the UK

Downsizing offers clear benefits, such as reducing household expenses, including maintenance, utilities, and council tax.

It can also release equity from your current property to bolster retirement savings or fund travel and hobbies.

A smaller home may also simplify your lifestyle and be easier to manage as you age.

However

Downsizing has its drawbacks, including the costs of moving, such as estate agent fees, stamp duty, and removals.

Emotional ties to your current home can make the decision difficult, and finding a suitable property in your desired area may be challenging in the current housing market.

When Is the Right Time to Choose Downsizing or Equity Release?

The right time depends on individual financial situations and lifestyle goals, requiring careful consideration.

When Should You Downsize or Consider Equity Release in the UK?

Balancing your financial needs in retirement can be challenging.

In the UK, two popular strategies are downsizing and equity release.

Both have their benefits and drawbacks.

Downsizing means selling your current home to move into a smaller, less expensive one, freeing up cash.

Equity release, on the other hand, allows homeowners aged 55 and over to tap into the value of their home while they are still living there.

Your decision should be based on your unique circumstances.

Downsizing is a good option if you are comfortable moving into a smaller home and are keen to free up funds for your retirement.

However, equity release can provide a lump sum or steady income without the need to move.

It is important to consult with a financial advisor who can help you consider the benefits and potential pitfalls of each approach.

Always remember, you are not just dealing with property and money, but with your future comfort and security.

What Is the Best Age to Downsize Your Home in the UK?

There is no one-size-fits-all answer to the best age to downsize, but many homeowners consider it between the ages of 60 and 70.

This timing often aligns with retirement when income changes and the need for a more manageable property becomes apparent.

Moving earlier can also allow you to enjoy the benefits of reduced costs and a simpler lifestyle for longer.

Waiting too long to downsize can bring challenges, such as declining health or difficulty managing a larger property.

Planning ahead ensures you can find the right home while still able to handle the physical and emotional aspects of moving.

Downsizing or Equity Release: What Is the Best Choice for You?

Deciding whether downsizing or equity release is best for you will ultimately come down to an analysis of your own needs and preferences. 

Both options present unique benefits and challenges that can significantly impact your financial future and lifestyle. 

Consider the costs, benefits, and long-term implications of each option, and consult a financial advisor to help you make an informed decision based on your unique circumstances.

How Can Downsizing Quickly Benefit You Financially?

Quick downsizing can reduce living costs and release equity, improving your financial situation rapidly.

What Benefits Can Downsizing Your Home Quickly Offer?

The benefits of downsizing include a simpler lifestyle, financial savings, and more free time. 

A few of the main benefits of downsizing... 

• Financial savings: Smaller homes are more affordable in terms of mortgage payments, property taxes, utility bills, and maintenance costs. This can leave you with more money to use for other things, such as travel or investments.²
• Financial gain: You will normally profit from the sale of your larger property, which could enable you to pay off debts or increase your retirement savings. 
• Reduced Maintenance: Smaller homes require less maintenance, saving you time and money. 
• Simplified Lifestyle: Moving to a smaller home can promote a more focused and organised way of living, with fewer possessions to manage and maintain. This could leave you more time to spend on pastimes and leisure activities. 

Despite these potential benefits, it is crucial to consider the potential risks as well as your personal circumstances, preferences, and retirement goals before downsizing. 

How Much Does It Cost to Downsize Your Home Quickly?

The cost of downsizing can vary depending on a range of factors, such as location, property values, and moving expenses. 

Some detailed costs to consider when downsizing...

• Property purchase costs: Buying a home comes with costs, including the cost of the new, smaller home, which may include a down payment, and mortgage fees. Other costs include stamp duty, land registry fees, survey fees, and solicitor or conveyancing fees. 
• Selling costs: Expenses you may face when selling your current home include estate agent’s fees and conveyancing fees. You may also incur costs associated with the Energy Performance Certificate (EPC) and potential home staging costs to make your property more appealing to buyers. 
• Renovations and repairs: You may need to make modifications to your new property to make it suitable for your needs. These costs can include new paint, flooring, or even more significant structural changes. 

It is crucial to create a comprehensive budget that accounts for these costs when considering downsizing to ensure a smooth transition and avoid any unexpected financial burdens. 

It is also helpful to consult with a financial advisor or real estate professional to help you understand the potential costs involved and determine whether downsizing is the right decision for your specific situation.

Why Choose Equity Release Over Alternatives Like Downsizing?

You may choose equity release over alternatives like downsizing because it may provide a steady income or lump sum without the need to move, which is a desirable outcome for some homeowners.

Why Opt for Equity Release? Common Reasons Explained

Common reasons for equity release include repaying debt and covering healthcare expenses. 

Equity release can be an attractive option for homeowners looking to access the wealth tied up in their property without selling their home, although it will not be the most suitable option in all cases. 

Common reasons for considering equity release include...

How Does Equity Release Supplement Retirement Income?

Equity release could be a viable way to supplement your retirement income.

Pension equity release can provide additional funds to ensure a more comfortable retirement.

Can Equity Release Fund Your Home Improvements?

Homeowners can use the money from equity releases to make improvements to their property. 

You can use the loan payment to finance necessary repairs, renovations, and adaptations to make your home more comfortable or accessible.

Is Equity Release a Solution For Debt Consolidation?

Equity release can help you consolidate your debts.

You could use equity release to clear credit card debts or personal loans, thereby reducing your monthly outgoings and simplifying your personal finances.

Can Equity Release Help With Healthcare Expenses?

Healthcare expenses can also be covered using an equity release loan. 

Equity release funds can be used to cover private medical bills, at-home care, or long-term care services.

What Are the Advantages of Equity Release Downsizing Protection?

The benefits of equity release include retaining ownership of your home (if you opt for a lifetime mortgage) and not needing to make any monthly repayments. 

The key advantages of equity release are that it allows you to...

• Supplement your income and potentially secure a more comfortable retirement.
• Maintain ownership of your home and keep living in the property while accessing equity from it (if you choose a lifetime mortgage).
• Fund home improvements, necessary repairs, renovations, or adaptations to help you live more comfortably during retirement.
• Access tax-free funds, as equity release is considered a loan instead of income.
• Borrow money without having to make monthly repayments, meaning you will be able to keep your outgoings relatively low in retirement.
• Benefit from flexible borrowing options by choosing a lump sum, a drawdown option, or both.

Of course, it is very important to seek professional advice and consider these benefits in conjunction with the associated risks before opting for equity release.

What Are the Best Alternatives to Equity Release?

Equity release isn’t the only way to access funds from your property.

Remortgaging is a popular alternative, allowing you to secure a new mortgage at a better rate or borrow additional funds without selling your home.

Retirement interest-only mortgages also provide a way to release cash by paying only the interest, keeping your home as security.

Other options include downsizing to a smaller property, which can free up significant cash while reducing living costs.

Personal savings or selling other assets may also provide the funds you need without incurring long-term commitments or interest charges.

What Costs Are Involved in Equity Release and Downsizing?

Both options involve fees and potential lifestyle changes, with costs varying based on individual circumstances.

Understanding the Costs: How to Release Funds From Property

The cost of equity release includes interest, arrangement fees, valuation fees, legal fees, and, potentially, early repayment charges.

How much interest you may accrue will depend on the amount you have borrowed and how long your plan will be running.

When it comes to other costs, some providers may not charge valuation or advice fees³, some do not charge transfer fees⁴, and some may not charge arrangement fees.⁵

Whilst the exact costs will vary depending on the specific equity release plan and provider, you should anticipate paying between £1,500 and £3,000 to set up your equity release plan.⁶

What Should You Know About Downsizing to Be Mortgage-Free?

With downsizing, you need to be aware of a few important factors, including moving costs and the emotional impact of leaving your old home.

Some risks of downsizing you need to consider...

• Moving costs: There will be certain expenses associated with relocating. 
• Time: Moving house can be a time-consuming and draining process.
• Emotional impact: You may experience feelings of loss when leaving your old home and letting go of items that may have sentimental value.
• Smaller living space: Moving to a smaller home may leave you less room for hosting gatherings, receiving guests, and pursuing hobbies.
• Social changes: Downsizing and moving away from your old home could lead to a disruption of ties with your neighbours, friends, or community and may require you to adjust to a completely new environment and way of life.

Answering Your Questions About Equity Release Alternatives and Downsizing

Concluding Thoughts on Equity Release vs. Downsizing

As you move into your senior years, you may find yourself pondering whether to downsize or opt for equity release to fund your retirement dreams. 

Your choice will depend on your individual and personal circumstances. 

When choosing the best option for you, keep your retirement goals in mind and let professional advice guide your moves. 

Do your research, consider your options, and speak to a qualified financial advisor to help you consider the benefits and risks of both approaches as you decide between equity release and downsizing.