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What Are Alternatives to Equity Release?

There could be many reasons you might consider an alternative option for funds rather than an equity release. Perhaps you’re not convinced by the plan? Maybe you want to explore options?

Whatever the case, you can take solace that there are other options for funds out there. This guide will present the alternatives to equity market financial solutions.

Why Would You Need Alternatives To Equity Release?

Many older persons research equity release as a possible way to fund retirement or gain needed cash in exchange for a percentage value of their property. However, financial advisors will often explore options with their clients as equity release may not be for everyone.

Why would equity release not be a viable option? There are downsides to the plans to consider, mainly interfering with a prospective borrower’s long-term vision.

Let’s look at the risks of equity release to justify why alternatives might suit better, including:

  • Owing more on your lifetime mortgage because of compound interest (payable sum reaches the total value of the home)
  • Significant penalties if you want to terminate the equity release plan
  • You’re not on the property ladder.
  • Complications of a leasehold property
  • Reduction or elimination of entitled benefits
  • The costly process of getting an equity release plan
  • Interest rates may be higher than anticipated

Equity release has many advantages if you’re on the property ladder. But the cons may outweigh the pros in particular circumstances. So what can you do as an alternative to equity release?

Explore the 10 Most Popular Alternatives to Equity Release

We’ve listed ten of the most prominent alternative finance options below.

1. Downsizing

Arguably the most popular alternative to equity release is downsizing. This process involves selling your current home and moving to a less expensive place that will likely be smaller.

Downsizing aims to cover the remaining costs on your home and get funds from cash buyers, purchasing a less expensive home to live in and living off the rest of the money. There’s more than one reason why downsizing can be a good alternative.

There are likely to be fewer maintenance costs and reduced utility bills should you decide to move somewhere smaller. Any taxes involved in the local area could be significantly less as well. It’s probably one of the most straightforward ways to get a lump sum of cash when in need and you own a property.

However, downsizing doesn’t come without its concerns. The amount gained from the sale may not be as much as you hope, and the excess amount may mean you still have to seek other sources of cash to live.

There are costs to moving home, stresses behind logistics, and there may be an emotional attachment to the current property. But all the cards could be in your favour for selling a home, and downsizing might be the most manageable, most viable alternative.

2. Remortgaging

Remortgaging is an alternative if you haven’t paid off the current mortgage on your home. You can remortgage a new deal that will release some of the equity on your home.

How does remortgaging work? Say you have a home worth £300,000 with a mortgage balance of £50,000. You can choose to request £100,000, where you’ll pay back the outstanding amount on your home, and use the remaining £50’000 to spend as you wish.

While remortgaging is a viable alternative, the application process is not as straightforward as one would like. If you’re an older person, remortgaging gets trickier, and the rules around the loan tend to be stricter than a traditional mortgage.

You’ll need to prove you have sufficient income to make repayments like a traditional mortgage.

3. Withdrawing from Your Pension

Withdrawing from pensions isn’t an alternative available to everyone. However, it can be an option if you’ve built up a private retirement fund over the years. If you’re at retirement age and have invested some of your pay into a pension for your years of employment, it’s worth checking the balance.

You’ve likely built up a considerable sum over the years. This money could now get released as a lump sum or regular income. Check with your pension holder about how you can access this money.

4. Renting Out a Room

The advancements in technology mean that it’s easier to rent rooms out and get a substantial income. Renting a room is another way to get a regular stream of revenue if you already own a home and don’t mind hosting guests in both the short-term and long-term.

Even the UK Government Housing Association has a Rent a Room Scheme that could see your furnished room generate an extra £7,500 tax-free per year. However, some codes and regulations apply should you rent out a space, where the details may make the option a little stressful.

Not to mention, tenants can vary and may not be compatible with the living style in your household. But renting your extra rooms is always an option if you prefer an alternative to equity release!

5. Continued Employment

Instead of committing to equity release, one more obvious choice is to continue or find new employment. The benefit to working is that you’ll earn an income while also promoting the active human benefits of retaining social interactions, exercising, and keeping your brain busy!

You could take up a side job, start that business you always wanted, or even get involved in a new career. There are plenty of employment options to explore to supplement your income without needing equity release.

However, the drawbacks of continued employment mean you won’t be able to enjoy retirement as much if you have planned some relaxation in your golden years. There could also be health implications for continuing to put yourself through physical and mental strain.

But plenty of people prefer working over retirement – so employment might be a perfect alternative.

6. Budget Your Savings

Savings is another alternative that may not be viable for everyone. However, it’s certainly an option if you’ve managed to build a substantial savings pot over the years. If you’re comfortable using your saved cash, you can budget the balance to cover expenses for the foreseeable future.

You might have some investments or pensions pugged away that you could tap siphon. If you do have some assets you can sell, consider advice from a financial advisor as there may be tax implications to the sale.

7. Retirement Interest Only (RIO) Mortgage

A Retirement Interest Only Mortgage may be the best bet if you seek something similar to an equity release for cash. The loan shares identical features to a lifetime mortgage, where you’ll get a large lump sum in exchange for a percentage of the value of your home, but with a fundamental difference.

An RIO means that you’ll make monthly repayments on the interest accrued on loan. That means that when your house gets sold, you’ll only repay the original amount borrowed from the sale of the property.

It’s beneficial to those concerned about leaving money behind for their loved ones. RIOs are relatively simple, pending proof that you can afford the monthly interest payments.

8. Credit Cards

Credit cards are an available alternative to equity release. However, these should only get considered if the amount you need is relatively small, like covering trivial expenses.

Credit cards often have low-interest rates and other benefits, considering a competitive market for customers. If you have a good credit history, you could get a credit card with a significantly low rate. There’s often even a zero-fee deal if you make a balance transfer when opening the account.

9. Apply for a Secured or Unsecured Loan

Unsecured or secured loans are another way to gain a lump sum of cash without an equity release scheme. But what’s the difference between the two?

A secured loan gets taken out against an asset such as your existing property, which gets seized if you cannot make repayments. These loans usually have low-interest rates, but they are riskier than unsecured ones as you may lose your assets.

Unsecured loans aren’t pegged against an asset, making them more straightforward. You’ll apply for a lump sum and make monthly repayments. However, approval is subject to proving that you have the income to afford your payments.

Each has its risks and rewards, so it’s worth exploring the details behind these loan options before committing to this alternative.

10. Check If You’re Entitled to State Benefits or Grants

Finally, you may be entitled to state benefits or eligible for grants to top up your income. These include state pensions, home improvement grants, and more. Check with your local government offices to understand what benefits or contributions you can get.

So, all things considered, if you need cash, are these alternatives better than equity release?

Are the Alternatives Better Than Equity Release?

We compare plans from the leading equity release providers

Like every financial product, advantages and disadvantages run parallel to your current circumstances. There’s no way to clearly define alternatives as better than equity release, as the plans may benefit the borrower.

However, equity release may not suit specific prospective borrowers, and alternatives may line up better with financial circumstances or long-term vision. It’s always good to have options, so we’ve listed the other choices for the equity release above.