What are the alternatives to equity release?

Equity release can provide a very effective way to release money from your home. With the UK’s ageing population and increased living costs, the opportunity to release money that is locked up in your home and receive a lump sum, upfront, and continue to stay in your home – can be a very good proposition. However, to make sure that you use equity release effectively, there are some things to consider beforehand and consider the alternatives.

Equity release does not suit everyone

It is important to consider a variety of factors when you apply for equity release including:

There are a variety of viable alternatives to equity release. The one you choose will largely be dependent on factors such as how much you hope to raise, and how quickly you want to achieve this, as well as the current state of your finances. We take a look at some of the best alternatives to equity release products.

Downsizing

There is always the option of selling your current property and moving to a cheaper, smaller home. This would also provide you with a huge sum of equity upon the sale of your property – which can be used to finance your senior years. It could be particularly appealing for older borrowers whose children have left home a long-time ago and require less living space.

Retirement interest-only

An RIO mortgage allows borrowers to pay mortgage interest monthly until they either die, sell the property or move into long-term care – and the repayment of the loan is completed through selling the house.

With RIO mortgages, you can usually borrow more money than is possible with an equity release mortgage, with lenders only requiring a small deposit.

If you do decide to apply for an RIO mortgage, you will need to pass affordability checks before being approved, which equity release does not require from applicants. Furthermore, the market is quite small, which means that interest can be high due to the lack of competition from other lenders.

Credit

Do you only need to release a small amount of money, and need it fairly quickly? A credit card or personal loan could be the most appropriate solution for you, as opposed to an equity release mortgage. If you wish to use equity in your home in another way, you can secure a loan by way of second charge, and this will allow you to release huge sums secured against your property and pay low rates of interest of around 5.7% APRC.

Renting out a room

If time is not of the essence when it comes to money, but you would still like to get some cash over the course of time, then you could look at renting out a room in your property.

You have a number of possibilities, such as renting out a room in the form of a short-term let (such as a holiday let or a bed and breakfast arrangement). All of this will depend on things such as where you live in the UK, as well as how many tourists tend to visit the region over the year.

You could also look at taking in a lodger, and you could benefit from the Government’s Rent a Room scheme if you do. This scheme enables individuals to earn up to £7,500 completely tax free, if you rent out a furnished room. However, it is important to keep in mind that the tax-free amount drops to £3,750 if you share the income with your spouse or a third party.