I think you’ll agree with me when I say…
Parting with your residence can be emotionally stressful, especially when you have dependents.
Well, it turns out that equity release is not the only solution to your financial constraints. There are ten alternatives you can opt to consider before making the difficult resolution of taking out an equity release plan.
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The 10 Alternatives to Equity Release
While it is true, that many people use equity release schemes every year to fund everything from home improvement, opening up a small business, repaying debts owed, and round-the-world trips – it is certainly not for everyone.
Having financial freedom is, something everyone wants, but in as much as equity release may look like your only way out, it is always essential to weigh up the pros and cons before you raise money that way.
Take a moment and assess your property. Do you think you can you sell your current home and purchase a smaller property or realty in a cheaper area?
Well, once your kids are grown, and they move out, you will have more space in your home than you need. That is when downsizing becomes a viable option.
It is one of the more popular ways of gathering up some extra buck in the UK market right now. In fact, according to a report by a major insurance company, nearly two in five over-55s – up to 3.5 million homeowners – plan to sell their houses and expect to raise around an average of £88,000. Over 78% of the over-55 homeowners planning to sell say that the goal of downsizing is to release equity.
So, what are the conditions for downsizing?
- If your home seems like it is too big for you
- If it is an older property that requires constant maintenance
- If the realty is expensive to run
- If you want to move to a different region
However, in as much as it is the right move for you to make, very few homeowners can finance their retirement solely by downsizing, and it also has some disadvantages such as:
- If perhaps, the property market is falling at the point when you decide to sell your realty, you might not be able to make as much money as you may have anticipated.
- Additionally, it can also take you months and year on to find a ideal buyer or a place to relocate.
- Downsizing also forces you to let go of your familiar and longstanding residence, a circumstance that might be an emotional stressor to some people and even their own household.
- There are also some cost-related considerations when down-sizing like: realtor agent’s fees, legal fees, moving costs, re-decorating, replacing furniture, and stamp duty.
2. Ask Your Friends and Family for Financial Help
Sit down and assess whether your relatives and friends can lend a hand. If they can, then do not shy away from asking for their much-needed help.
Some friends or relatives can send some money your way, but you should also make sure that you are both clear about whether you are receiving the money as a gift or a loan so that you can avoid any awkwardness down the road.
You can also choose the option of asking some of your relatives to purchase the realty (or part of it) and then sign a long-term lease to continue residing there.
- However, in as much as that sounds like the prime deal, it is not as straightforward and can lead to potential complications in the future. For example–If your son or daughter were to purchase the home, and is then declared bankrupt, you could be evicted since you are only a tenant.
- Perhaps, their marriages were to break down; the house could be disputed in any divorce hearings.
Some very complex tax circumstances might also arise, primarily if you sold the property for a discounted rate. In such circumstance, the taxman and the relevant government agency could assume that you have successfully given a proportion of your realty away, and thus it would be considered part of the taxable property at death.
Therefore, before you consider asking your relatives to buy your property, it is vital that you take proper legal and tax advice from your lawyer or property manager.
3. Use Your Savings & Other Investments
Do you have any investments or a savings account in your town bank? If yes, are they sufficient to give you the lump sum or extra income you require?
If so, consider using these first, and postpone taking out an equity release. However, in as much as you might be desperate for the money, always make sure you keep aside an emergency fund for life’s essentials and for you to be assured with adequate funds behind you in the bank.
If you have any investments, it might be a great plan to seek professional help before doing anything. Some investments might be tax-free, as the ISA, or maybe you have some money semi-locked up in specialised financial products.
If so, selling or accessing the money without proper planning, might mean you are leaving money on the table.
4. Take in Tenants
Are you comfortable to live with strangers? Do you have an Airbnb account? If you answered yes then why not get down to registering the part of your home you want to lease out for a few months? You can even rent one of the rooms out to a foreign exchange student over the summer, and under the government’s Rent a Room Scheme you can easily earn up to £7,500 a year from a tenant before any tax is due on the proceeds.
Thus, it not only brings you in the much-needed extra money but also allows you to remain in the property, but also allows you to meet new people and learn about their cultures, which can be an exciting adventure in your retirement.
The downside to this alternative, however, is that your house may not be familiar like your own, and you might probably not be up for the hassle that could come with having a lodger.
5. Are You Claiming All the State Benefits You’re Entitled To?
Before you make an irreversible resolution by taking out an equity release scheme, make sure that you check if you are eligible for any federal benefits that you might be entitled to. You might also want to consider visiting your government agency to see whether you can claim any means-tested benefits like pension or saving credit, disability benefits, or council tax reduction benefits. These benefits could increase your income or aid with home improvements.
6. How About Re-Mortgaging?
Can you borrow the money you require from another source, like say, a bank?
Well, even if you are retired, you can still borrow against the value of your realty. You could either take out a loan against the value of your home; or re-mortgage your house either as part of a credit agreement or a typical residential mortgage.
Re-mortgaging is often overlooked by those considering gathering up some money for their golden age adventures.
In as much as some mortgage providers do not love dealing with retirees, some accommodate the project. All you have to do is call your homeland mortgage provider and see if they will end a helping hand.
It would be great if you came up with a dependable and contractual plan of payment, maybe like monthly repayments.
The advantage of re-mortgaging is that the interest rate is usually lower than that of an equity release deal and you are offered far more flexibility. So if you want to withdraw the mortgage or refinance it in 2-3 years, the repayment penalties are usually reasonable. It is also less disruptive than moving.
However, in as much as it is the prime deal, if you cannot keep up with the repayments, there is always a risk of your home being repossessed.
7. Reduce Your Expenditure
Most people take out equity release to maintain their way of life– rather than as a way of producing funds needed just to get by.
So, if you are struggling to live within your means in retirement, you could begin by analysing your expenditure to see if there are any areas where you could cut back.
Making cutbacks in your normal life like shopping around for cheaper utilities, reviewing house & car insurance or even shopping habits, can go a long way towards bridging the shortfall that exists and thus allowing you to keep your home and sanity.
8. Get a Part-Time Job
If you are still up for some running around, you can always get a part-time job. You can opt to be an expert adviser in your field or work towards setting up that business you have always wanted to own. It is a great way of keeping you active and healthy, getting a fresh perspective of things, and allowing you to fund your lifestyle.
9. Check Your Eligibility for Local Grants to Improve Your Property
Most government authorities offer grants to assist with the cost of home improvements. However, the amount you get and availability depends on the internal body itself. So before you opt for equity release, do some research and find out what your district town can offer you.
10. Consider Other Types of Finance
Depending on your disposable income and maturity, individual financial institutions can still offer you conventional personal loans, credit cards, or Hire Purchase. These might make you incur additional monthly expenses & because of maturity, may only be available for a short term.
So, if they are an option, make sure they will be affordable for the whole term and not just the present. If you need more information make sure you understand how do equity release schemes work?
Most people often want the finest of both worlds – to continue to manage in our current states while also having some more money in their pocket for a great life and adventures. Sadly, for many, this isn’t possible, and thus they make some difficult choices, one of them being equity release, which may eventually lead to the loss of parentage property.
So instead of jumping to a conclusion and taking out an equity release, make sure that you make a prudent judgement. Remember first to do everything possible to reduce or limit your debt burden.
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How much money could you release?
An equity release allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.