Alternatives to Equity Release

Main guide

Alternatives to Equity Release

Why consider alternatives to equity release?

Equity release is a long-term financial commitment.

With a lifetime mortgage, you borrow money secured against your home. You usually do not have to make monthly repayments, but interest can build up over time if it is not paid. The loan is normally repaid when the last borrower dies or moves permanently into long-term care.

This can work well for some homeowners, but it may also reduce inheritance, affect means-tested benefits and limit future choices.

That is why alternatives should be considered first.

A suitable advice process should not begin with the question:

?How much equity release can I get??

It should begin with:

?What problem am I trying to solve, and what is the safest way to solve it??

Sometimes equity release may be the right answer. Sometimes a different option may be better.

You can read more about lifetime mortgages here: /equity-release/how-does-a-lifetime-mortgage-work/

Downsizing

Downsizing means selling your current home and buying a cheaper one.

This can release money without taking out a lifetime mortgage. It may be suitable if your current home is larger than you need, expensive to maintain or no longer right for later life.

• Possible advantages of downsizing include:
• no lifetime mortgage interest building up
• potential to release a larger amount
• lower running costs
• smaller or more manageable home
• opportunity to move closer to family
• potential to choose a more accessible property
• less maintenance
• possible reduction in council tax or energy costs

Possible disadvantages include:

• moving can be stressful
• estate agent, legal and removal costs
• stamp duty may apply depending on the purchase
• emotional attachment to the family home
• suitable properties may be hard to find
• the new home may cost more than expected
• moving away from neighbours or support networks
• disruption to family routines

Downsizing can be a strong alternative if you are open to moving. However, it may not be suitable if staying in your home is very important to you.

Standard remortgage

A standard remortgage may be an option if you have enough income to pass affordability checks.

• This could allow you to:
• raise extra funds
• repay an existing mortgage
• switch to a new interest rate
• extend the mortgage term
• consolidate borrowing, where suitable
• move from interest-only to repayment or part repayment

A standard mortgage usually requires monthly payments. This can be a benefit if you want to control the debt, but it can also be a problem if your retirement income is limited.

• Possible advantages include:
• may be cheaper than equity release
• debt may reduce if on a repayment basis
• more familiar product structure
• may preserve more inheritance
• may offer shorter-term flexibility

Possible disadvantages include:

• monthly payments are required
• affordability checks apply
• age limits or term restrictions may apply
• income may not be sufficient
• your home could be repossessed if payments are not maintained
• not always available in later life

A remortgage should be considered where affordable and realistic, especially if the borrowing need is short or medium term.

Later-life mortgage

A later-life mortgage is a broad term for mortgage products designed for older borrowers.

This may include standard mortgages with older age limits, retirement interest-only mortgages and other later-life lending products.

A later-life mortgage may suit someone who has stable retirement income and wants to keep making payments rather than allowing interest to roll up.

• Possible advantages include:
• may reduce long-term interest build-up
• can preserve more property equity
• may provide more flexibility than equity release
• may suit people with reliable pension income
• may allow borrowing without releasing equity for life

Possible disadvantages include:

• monthly payments are usually required
• affordability checks apply
• may not be available depending on age, income or property
• payment difficulty could put the home at risk
• term and repayment rules vary

This option should be compared carefully with equity release if you are able and willing to make monthly payments.

Retirement interest-only mortgage

A retirement interest-only mortgage, often called a RIO mortgage, is designed for later-life borrowers.

With a RIO mortgage, you usually pay the interest each month. The loan is typically repaid when you die, move into long-term care or sell the property.

This can be an alternative to equity release because the loan balance may not grow if you keep paying the interest.

• Possible advantages include:
• monthly interest payments can stop the balance increasing
• may preserve more inheritance than rolled-up interest
• can help repay an existing interest-only mortgage
• may be suitable for people with reliable retirement income
• normally no fixed end date in the same way as some standard mortgages

Possible disadvantages include:

• monthly payments are required
• affordability checks apply
• income must support the payments
• the home may be at risk if payments are not maintained
• not everyone qualifies
• may not provide as much flexibility as a lifetime mortgage

A RIO mortgage may be worth exploring if you have enough pension or other income to afford the interest payments.

Read more about equity release interest here: /equity-release/equity-release-interest-rates-and-costs/

Use savings or investments

Using existing savings or investments may be simpler than borrowing against your home.

This can be suitable if you have money available and using it will not leave you financially vulnerable.

• Possible advantages include:
• no new borrowing secured against your home
• no lifetime mortgage interest
• quicker and simpler than equity release
• may preserve more property value
• avoids legal and lender processes

Possible disadvantages include:

• reduces emergency savings
• may affect future income
• could create tax consequences
• may reduce investment growth
• could leave less available for care or unexpected costs
• may not provide enough money

Before using savings or investments, consider whether you need to keep a safety buffer. You may also need financial or tax advice if investments, pensions or ISAs are involved.

Claim benefits you are entitled to

Before taking equity release, check whether you are entitled to benefits or support.

Some homeowners do not claim everything they are eligible for. This can be especially relevant in retirement.

• Support might include:
• Pension Credit
• Council Tax Support
• Attendance Allowance
• Personal Independence Payment
• Carer?s Allowance
• help with health costs
• local authority support
• winter or energy-related support, depending on rules at the time

Some benefits are means-tested and some are not.

Checking entitlement first may reduce the amount you need to borrow or remove the need for equity release altogether.

This is also important because equity release can affect means-tested benefits if released money increases your savings.

Read more here: /equity-release/equity-release-and-benefits/

Local authority grants or home improvement support

If you need money for repairs, adaptations or accessibility improvements, check whether support is available before using equity release.

• Depending on your circumstances and local authority rules, there may be help for:
• disabled adaptations
• essential repairs
• heating improvements
• energy efficiency
• safety works
• mobility-related changes
• home improvement assistance

Support varies by location and eligibility.

If a grant or support scheme is available, it may be a better option than borrowing against your home.

This is especially important if the work is needed for health, disability or care reasons.

Family support

Family support may be an alternative, but it needs careful handling.

• Family may be able to help by:
• contributing to home improvements
• helping repay a small mortgage
• providing a loan
• buying part of the property, where legally appropriate
• helping with care or household costs
• supporting a move
• helping explore benefits or grants

• Possible advantages include:
• may avoid formal borrowing
• may reduce long-term cost
• can keep more equity in the family
• may be flexible

Possible disadvantages include:

• can create family tension
• may be unfair to other beneficiaries
• legal ownership issues can be complex
• informal loans can cause disputes
• family circumstances can change
• pressure from family can be a safeguarding concern

Family help should be discussed openly and documented properly where money or property rights are involved. Legal or tax advice may be needed.

No one should pressure you into taking equity release for their benefit.

Budgeting and reducing costs

If the need for money is linked to everyday spending, equity release may not solve the underlying problem.

It may provide short-term relief but create a larger long-term debt.

Before borrowing against your home, consider whether budgeting support could help.

• This may include:
• reviewing regular bills
• switching utilities or insurance
• checking subscriptions
• reviewing debts
• reducing non-essential spending
• checking benefit entitlement
• seeking support with energy costs
• speaking to creditors
• getting debt advice

This option may not be enough if the need is large or urgent, but it can be an important first step.

Debt advice

If you are considering equity release to repay debts, arrears, credit cards, loans or urgent bills, specialist debt advice may be needed.

Equity release can sometimes be used to repay borrowing, but it turns unsecured or short-term debts into a long-term debt secured against your home.

That may reduce monthly pressure, but it can also increase the long-term cost and reduce inheritance.

• Debt advice may help you understand options such as:
• repayment plans
• breathing space
• creditor negotiation
• debt management plans
• debt relief options
• budgeting support
• priority and non-priority debt handling
• benefit checks

This is especially important if you are under pressure from lenders, family or creditors.

Think carefully before securing other debts against your home.

Selling other assets

You may be able to raise money by selling other assets before using equity release.

• This could include:
• a second property
• a vehicle
• valuables
• investments
• collectibles
• unused land
• business assets, where relevant

This may avoid borrowing against your home, but it can also have tax, income or emotional consequences.

Selling assets should be considered carefully, especially if the asset produces income or has long-term value.

Renting out space

Some homeowners consider renting out a room or part of their home.

This may create income without borrowing, but it is not suitable for everyone.

• Possible advantages include:
• regular income
• no loan secured against the home
• may help cover bills
• allows you to stay in the property

Possible disadvantages include:

• loss of privacy
• tax implications
• insurance and mortgage consent issues
• safety and legal responsibilities
• suitability for your lifestyle
• possible effect on benefits
• practical issues if care needs increase

If you are considering this, check legal, tax, insurance and benefit implications first.

Delaying the expense

Sometimes the safest alternative is to delay the expense.

• This may apply if the reason for borrowing is not urgent, such as:
• non-essential home improvements
• gifts to family
• holidays
• a new car
• lifestyle spending
• future costs that are not yet certain

• Delaying may allow time to:
• save gradually
• compare options
• wait for better product terms
• involve family
• check benefits
• reduce the amount needed
• avoid unnecessary borrowing

This does not mean you should never spend money on quality of life. It simply means a lifetime mortgage should not be used lightly for costs that could be delayed or reduced.

Releasing a smaller amount

Another alternative to a large equity release plan is releasing less.

If equity release is suitable, the amount matters.

• Borrowing less may:
• reduce interest build-up
• preserve more inheritance
• reduce the impact on benefits
• keep more flexibility for later
• make drawdown more suitable
• reduce long-term risk

The maximum amount available is not always the right amount to take.

A suitable recommendation should focus on what you need and why, not just what you can borrow.

Read more here: /equity-release/how-much-equity-release-can-i-get/

How do you compare equity release with alternatives?

The right comparison depends on your goal.

For example:

• If you need to repay an existing mortgage, compare equity release with remortgaging, RIO mortgages, lender term extensions, downsizing and family support.
• If you need home adaptations, check grants and local authority support before borrowing.
• If you want to help family, consider whether you can afford the gift, whether family can wait, and how it affects inheritance.
• If you need everyday income, check benefits, budgeting, pension options and debt advice first.
• If you want home improvements, consider whether the work is essential, whether it can be phased and whether savings or smaller borrowing could help.

Equity release may still be suitable, but the reason for borrowing should guide the advice.

When might equity release still be suitable?

• Equity release may be suitable where:
• you want to stay in your home
• downsizing is not realistic or desired
• monthly repayments are not affordable or suitable
• other mortgage options are unavailable
• you understand the impact on inheritance
• benefits have been checked
• the amount released is appropriate
• alternatives have been considered
• the product includes suitable safeguards
• the plan meets a clear objective

It should not be recommended simply because you qualify.

Suitability depends on your full circumstances and the options available at the time.

Questions to ask before choosing equity release

Before deciding, ask:

• Why do I need the money?
• Is the expense essential?
• How much do I actually need?
• Could I release less?
• Could I use savings or income instead?
• Could family help?
• Could I downsize?
• Could I remortgage?
• Would a RIO mortgage be suitable?
• Are benefits or grants available?
• Would debt advice be more appropriate?
• How will equity release affect inheritance?
• Could means-tested benefits be affected?
• What happens if I need care?
• What happens if I want to move?
• What are the long-term costs?
• What alternatives has my adviser ruled out, and why?

A good recommendation should answer these clearly.