Alternatives to equity release
Mark Gregory checked this page for accuracy on 5th May 2022.
While it’s true that thousands of people use equity release schemes every year to fund anything from home improvements, repaying debts, gifts to children and round-the-world trips - it’s certainly not for everyone.
Indeed, having financial freedom is something we all want, but it’s essential that you weigh up the pros and cons of equity release before you raise money in this way.
If you’re considering equity release to raise money, let’s also look at some other ways to achieve your financial goals.
Letting out a room
If you have plenty of space available in your home, you could think about renting out a room to raise extra income.
Under the government’s Rent a Room Scheme, homeowners can earn up to £7,500 per year tax-free from letting out furnished accommodation in their property.
But proceed with caution: as a proprietor, you will have certain responsibilities you must fulfil, so it’s worth educating yourself on what to expect before letting anyone into your home. The way you share your home with a lodger will also affect what kind of tenancy they have. This, in turn, affects their rights and how you can end the tenancy.
If your children have flown the nest and you have more space than you can manage or need, downsizing could be a viable option.
This is a popular way of freeing up some extra cash. In fact, recent research from Prudential found that almost four million over 55s are planning to downsize in retirement.
When downsizing can work:
- Your home is starting to feel too big
- It is an older property that needs lots of maintenance
- The property is expensive to run
- You want to move to a different region
- To move nearer to family and friends
While moving home certainly works for some people, very few homeowners could fund a retirement solely by downsizing. There are many costs and emotional considerations when down-sizing and these include:
Other things to consider:
- Estate agent’s fees
- Legal fees
- Moving costs
- Replacing furniture
- Stamp duty
- Leaving what once was the family home
If you find yourself struggling to live within your means in retirement, you could reassess your finances and see if there are any areas where you could cut back or save money by reviewing your utility bills.
Using comparison sites to save on their energy bills, even having water meters installed are where many of our customers have managed to reduce their outgoings and helped stretch budgets in retirement.
Use other assets
Do you have savings tucked away for a ‘rainy day’? You could use these funds in retirement. This is a low-cost option which is quick to arrange; however, once the money has been spent, it could put a strain on your finances.
Have you checked whether you have any deferred pension arrangements? Under pension freedom rules, access to pension funds can now start from age 55 and could help solve an immediate problem, if appropriate.