If you don’t know these alternatives, you could get caught making an equity release decision you’ll regret!
Over £2bn in equity has already been released in 2021 and you could be next. However, releasing equity is a big decision and you don’t want to get caught in a life-long commitment, only to regret it later.
For all you know, you could have an alternative source of income that you never even thought of.
Luckily for you, we’re here to inspire you with:
- 12 equity release alternatives in Jan 2022.
- An alternative later life mortgage to consider.
- Financial advice that could change your life.
Our expert team delved into an analysis of how modern retirees survive in the UK. We looked at all the inside statistics by local financial advisers and combed the industry to discover the top 12 equity release alternatives in Jan 2022.
We bet you’re wondering what these are? Let’s find out RIGHT NOW!
We go into these options in more detail in this article, but here are some alternatives to equity release:
- Use a Credit Card
- Take Out a Retirement Interest-Only Mortgage
- Take Out a Personal Loan
- Use Savings & Investments
- Rent Out a Room in Your House
- Get Help From Your Family
- Consider Local Authority Grants & Loans
- Adjust Your Spending Habits to Save Money
- Extend Your Mortgage Term
- Get a Part-Time Job
What Is an Equity Release & How Does It All Work?
Equity release is the use of financial arrangements that provide the owner of a house or other property with funds derived from the value of the property while enabling them to continue using it.
Simply put, it’s a way to release equity from your house, while you still live in it.
Learn More: What’s Equity Release in the UK?
Before you continue reading, be sure to check out this video that sums up equity release:
Alternatives to Equity Release
12 Most Popular Alternatives to Equity Release in Jan 2022
Having financial freedom is something everyone wants, but in as much as equity release may look like your only way out, it’s always essential that you weigh up equity release before you raise money that way & consider the pros & cons.
Also, check out:
Consider these 12 alternatives to equity release before making your final decision:
Alternative #1: Downsizing
Do you think you can trade your current home to purchase a smaller property or an estate in a cheaper area?
The truth is that once your children have left the nest, you will often have more space in your home than you need. This is when scaling back becomes a viable option.
Did you know?
Downsizing is one of the more popular ways of freeing up some extra money in the UK market right now.
In fact, according to a report by a major insurance company, nearly 2 in 5 over 55s – that’s up to 3.5 million homeowners – plan to sell their houses and expect to raise an average of £88,000. Over 78% of the over 55s who consider selling say that the goal of downsizing is to release equity.
So, what are the benefits of downsizing?
- Your home may now feel too big for you and your remaining family members. By downsizing, you will give yourselves a more suitable space.
- You will no longer have to worry about maintaining an older and larger property, which can be a costly challenge.
- A smaller estate means fewer maintenance costs.
- You can move to a different region to fulfill a retirement dream.
It’s important to note that as much as it might be the right decision for you to make, very few homeowners can finance their retirement solely by downsizing, and there are some disadvantages such as:
- If the property market is falling when you decide to sell your estate, you might not be able to make as much money as you anticipated.
- It can take months to find a suitable buyer or a place to relocate.
- Downsizing also forces you to leave your longstanding home, which might be stressful for you and some members of your household.
- Packing up a family home and relocating to a new space takes a lot of time and effort.
- There are also some major costs to consider when down-sizing like: estate agent fees, legal fees, moving costs, re-decorating, replacing furniture, and stamp duty.
- A smaller property means that you will less-likely benefit from property growth.
Check this out: Should You Downsize or Take Equity Release?
Alternative #2: Use a Credit Card
Are you looking to access a relatively small amount of cash quickly? If so, perhaps consider a credit card as an alternative to equity release.
Some credit cards come with low-interest rates, or even no interest for a set time, and there are many options to choose from. Also make sure your card charges no annual fees.
You will need to make monthly repayments on a credit card (often with interest charged on top), whereas you have no obligation to do so in your lifetime with equity release.
Alternative #3: Take Out a Retirement Interest-Only Mortgage
There are alternative types of mortgages to look at when investigating equity release.
With an RIO, you can borrow a larger percentage of your property value than with equity release. This is sometimes as much as 75% of the total property value.
However, unlike with equity release, you are obligated to make monthly interest repayments. The loan amount is then also paid off through the sale of your property when you die or relocate to permanent care.
Due to the required rebates, you will have to go through affordability checks.
Alternative #4: Remortgaging
Do you still have an existing mortgage on your property? Did you know that you might be able to remortgage your home or extend your current mortgage? This arrangement can be made with your existing mortgage lender.
Remortgaging with a lower interest rate and improved terms can reduce your monthly payments, allowing you to have more spending money. It’s also a way to release some cash tied up into your estate.
Be sure to understand the difference between fixed rates, variable rates and trackers when looking to remortgage. Perhaps consult a mortgage broker to help you through this process.
Alternative #5: Take Out a Personal Loan
As a retiree, you still have the option of taking out a secured loan against your estate. This could be an option as it helps you avoid some of the high equity release costs.
Loans are available on a short term or long term basis, differing from the life-long commitment of equity release. Secured loans allow you to borrow more than unsecured, personal loans because using your home as collateral lowers the risk for the lender.
There are, however, some downsides to taking out a loan that you must be aware of:
- You must make monthly repayments – unlike with equity release, where you don’t have to make a single payment in your lifetime.
- Loan interest rates can be higher
- You can risk losing your house if you can’t make the repayments, whereas, with equity release, you will safely be able to stay in your home until you die or go to live in permanent care.
It’s always best to consult your financial adviser before taking out a secured loan.
Alternative #6: Use Savings & Investments
Are you lucky enough to have investments or a healthy savings account? If yes, are they sufficient to give you the lump sum or extra income you require?
If so, you might want to consider using these before choosing an equity release plan. As much as you might be desperate for funds, always make sure you keep aside an emergency fund for life’s essentials and for you to feel secure with adequate savings in the bank.
If you have any investments, it’s a good idea to seek professional help before doing anything. Some investments might be tax-free, such as the ISA2, or maybe you have some finances semi-locked up in specialised financial products.
In most cases, it would be preferable to use savings instead of other forms of income, including a private pension pot. If you don’t use this money, it will be passed on to your family when you die, inheritance tax (IHT) free.
The Lifetime ISA (LISA) is a great way to save for your retirement as everything you save gets a 25% boost from the government.
You can look at these options with your equity release adviser.
Alternative #7: Rent Out a Room in Your House
Are you comfortable living with strangers? If your answer is yes, then get down to registering on AirBnB to advertise the area of your home you want to lease out for a few months.
You can even lease 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.
There are many responsibilities involved in renting out a room, so it’s best to do your research before making this decision.
As well as bringing in the much-needed additional income, it also allows you to remain in the property. In addition, you get to meet new people and learn about their cultures, which can be an exciting adventure in your retirement.
However, this alternative’s downside is that your house may not feel like your own, and you might not want to deal with the hassle of having a lodger on your property.
Did you know?
You can still release equity from your property and host tenants if you wish to receive income from both avenues.
Alternative #8: Get Help From Your Family
While this is not ideal in some cases, it makes sense to consider whether your family and friends can lend a hand. If they can, then do not shy away from asking for their much-needed help.
Just make sure that you’re both clear about whether you’re receiving the financial aid as a gift or a loan so that you can avoid any awkwardness down the road.
Borrowing money from family can be great as it’s a way of taking out an interest-free loan. In addition, it will leave your estate intact and you won’t be paying the costs of equity release, increasing the value of your family’s inheritance.
You can also choose the option of asking some of your relatives to purchase your estate (or a part of it) and then sign a long-term lease to remain living there.
There are some cons of this to consider:
- Allowing family members to purchase your estate, or parts of it, can lead to potential complications in the future. For example, if your son or daughter were to buy the home and is then declared bankrupt, you could be evicted since you’re only a tenant.
- Perhaps, if their marriages were to break down, the house could be disputed in the divorce hearings.
- Some complex tax circumstances might also arise, primarily if you sold the property for a discounted rate. In such a situation, the taxman and the relevant local authority could assume that you have successfully given a proportion of your estate away. Thus it would be considered a portion of the taxable estate at death.
Before you consider asking your relatives to buy your property, it’s vital that you seek proper legal and tax advice from your lawyer or property manager.
Alternative #9: Consider Local Authority Grants & Loans
It is always wise to check if you’re eligible for any state benefits.
You might want to consider visiting your local council to see whether you can claim pension or saving credit, disability, or council tax reduction benefits. These could increase your income or aid with home improvements.
Take Note: You might have to forfeit these benefits with equity release. Speak to your financial adviser for assistance on the matter.
Alternative #10: Adjust Your Spending Habits to Save Money
Perhaps spend some time scrutinising your budget to see if you are spending more than you need to. Relooking at your expenses and eliminating unnecessary costs could help give you the cash injection you’ve been looking for.
You can additionally look at getting a job to help with your income vs. expenditure. Finally, check that you don’t have any subscriptions that have automatically renewed without your realising it.
Alternative #11: Extend Your Mortgage Term
If your mortgage isn’t paid off by when you’re able to retire, your lender might be willing to extend the terms for 5 to 10 years.
Your monthly payments would decrease, putting less pressure on your monthly expenses.
Some lenders might only cover mortgages for homeowners up to age 65, but others may be flexible.
Here are 4 great example:
- Family Building Society will consider a maximum age of 95 for their mortgage plans.
- Buckinghamshire Building Society will assess on a case-by-case basis. As such, they have no set age limit.
- Marsden Building Society‘s lifetime mortgage are designed for older borrows.
- Hodge Lifetime will consider extending your mortgage to the age of 95.
Alternative #12: Get a Part-Time Job
Getting a part-time job could make retirement a lot more pleasant experience.
Firstly, you’ll beat the retirement blues by having something to do. Whether it’s a craft or an office environment, you can take pleasure in engaging with different people.
Secondly, you can maintain some form of income to help you with everyday expenses.
Got Questions? Check These First
Is There a Better Alternative to Equity Release?
It’s difficult to say if there’s a better alternative to equity release. If you can get by without any form of loan, then that’s always best. However, if you or your family have no means to supplement your retirement income, then equity release is a great option to consider.
What are Some Alternatives to Equity Release?
Some of the alternatives to equity release include borrowing from friends or family, asking for support from your loved ones, or downsizing to a smaller home.
Where to Get Equity Release Advice?
You can get equity release advice from a whole-market financial adviser who specialises in equity release.
Most people want the best of both worlds – to live in their current state while also having some more cash in their pocket to live an ideal life.
If there are no other options for you, this could possibly be achieved through equity release. However, you don’t want to regret your decision.
Be sure to make a prudent decision and learn everything about the different options for equity release available in Jan 2022.
Use our free online equity release calculator now to see how much cash you can release from your home in 2021!