EQUITY RELEASE GUIDE
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Considering the alternatives can help you understand the different ways you might achieve your objectives before deciding whether equity release is appropriate for you.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
What are the alternatives to equity release?
Depending on what you want to achieve and your financial circumstances, there may be several other ways to access money, reduce borrowing or make use of the value in your home.
The options available will vary from person to person, but some of the main alternatives to consider include:
Downsizing or moving home
Selling your current home and moving to a less expensive property could potentially release money without taking out a lifetime mortgage.
Using savings or investments
If you have other assets available, you could consider whether using some of these may help meet your objectives instead of borrowing against your home.
Other mortgage options
Depending on your income, age and circumstances, other forms of mortgage or later-life borrowing may potentially be available.
Restructuring existing borrowing
If existing borrowing is driving the need for equity release, it may be worth considering whether it could be repaid or structured differently.
Arrangements with family
In some circumstances, financial support or arrangements involving family members may be worth exploring, although the financial and legal implications should be considered carefully.
Different approaches involve different trade-offs
For example, one option may avoid borrowing but involve moving home, while another may allow you to remain in your property but involve regular repayments. The relevant advantages, costs and implications will depend on your circumstances.
Downsizing or moving home
Selling your current home and moving to a less expensive property is one way you may be able to access some of the value tied up in your home without taking out a lifetime mortgage.
In broad terms, if you sell your existing property and buy a less expensive one, some of the difference may become available to you after taking account of the costs involved in moving.
Things to think about
YOUR HOUSING NEEDS
Would a different property still meet your needs now and in the future?
WHERE YOU WANT TO LIVE
A less expensive property may involve changing location as well as the size or type of home.
THE COST OF MOVING
Legal fees, estate agent fees, removals and relevant property taxes or transaction costs can reduce the amount ultimately released.
THE PRACTICAL IMPACT
Moving home can involve practical and emotional considerations as well as financial ones.
HOW DOWNSIZING CAN RELEASE EQUITY
LARGER / HIGHER-VALUE HOME
↓
SELL CURRENT HOME
↓
BUY LESS EXPENSIVE HOME
↓
POTENTIAL PROPERTY EQUITY RELEASED
The amount potentially available would depend on the sale price, the cost of the new property, any mortgage that needs to be repaid and the costs associated with moving.
Downsizing does not necessarily mean simply buying a smaller home
The location, type and value of the new property can all affect how much money may be released. For some people, moving may also form part of wider plans for retirement or future housing needs.
Using savings or investments
If you have savings or investments, using some of these may be another way to meet your financial objectives without borrowing against your home.
Whether this is appropriate will depend on factors such as what assets you hold, why you need the money, how much you need to retain for the future and the potential tax or investment implications of accessing those assets.
01
What do you have?
Consider the savings, investments or other accessible assets that may already be available to you.
02
What do you need?
Consider how much money you actually need and whether it is required as a lump sum or over a longer period.
03
What would using it mean?
Consider the effect of using those assets, including what would remain available for future needs.
Things to consider
Money you may need later
Consider whether you need to retain accessible money for unexpected costs or future expenditure.
Selling investments
Selling investments may affect your longer-term financial plans and could have tax implications depending on what you hold and your circumstances.
Future income
Consider whether savings or investments are intended to help provide income or financial security later in retirement.
Using only what you need
If your requirement is relatively limited, it may be worth considering whether existing resources could meet some or all of it.
Consider your wider financial position
Using existing assets avoids taking additional borrowing against your home, but it can reduce the savings or investments available for other purposes. The relevant trade-offs will depend on your individual circumstances.
Other mortgage or later-life lending options
A lifetime mortgage is not the only type of borrowing that may be available in later life. Depending on your income, age, property and circumstances, other mortgage options may also be worth exploring.
Different ways of servicing the borrowing
LIFETIME MORTGAGE
Interest can be added to the loan
With a lifetime mortgage, conventional monthly mortgage repayments are not normally required. Interest may instead be added to the outstanding mortgage.
Some products may also allow voluntary repayments.
OTHER MORTGAGE OPTIONS
Regular repayments may be required
Other mortgage options may require payments to be made from income, so affordability can be an important part of determining whether the borrowing is available.
The exact repayment requirements depend on the mortgage.
What other mortgage options might be available?
Depending on your circumstances, possibilities may include:
Retirement interest-only mortgages
A retirement interest-only mortgage, often called a RIO mortgage, generally involves paying the interest each month while the original capital remains outstanding. Affordability will need to be assessed.
Other residential or later-life mortgages
Other mortgage products may also be available to older borrowers, with different approaches to the mortgage term, repayments and how the borrowing is ultimately repaid.
Availability depends on your circumstances
The mortgage options available, their repayment requirements and their eligibility criteria vary between lenders and products. An adviser can explain which types of borrowing may be available based on your circumstances.
Repaying or restructuring existing borrowing
Some homeowners consider equity release because they have an existing mortgage or other borrowing that they want or need to repay. Before taking out a lifetime mortgage, it may be worth considering whether that borrowing could be repaid or structured differently.
The options available will depend on the type of borrowing, the amount outstanding, your income and wider circumstances.
Other approaches that may be worth exploring
Consider the overall cost and implications
Replacing existing borrowing does not necessarily reduce its overall cost. A new mortgage may have different repayments, interest and terms from the borrowing it replaces.
An adviser can review your existing borrowing alongside the mortgage and equity release options that may be available.
Refinancing the mortgage
Another mortgage may potentially allow existing borrowing to be replaced, subject to affordability, eligibility and the terms available.
Using other available resources
Savings, investments or other available money could potentially be used to reduce or repay some borrowing, although the wider implications should be considered.
Reducing the amount that needs to be borrowed
If part of the existing debt can be repaid in another way, the amount of any new borrowing required may be lower.
Arrangements with family
In some circumstances, family members may be able to help financially or an arrangement involving the property may be considered as an alternative to equity release.
Family arrangements can take different forms, and the financial, legal and personal implications should be considered carefully before anything is agreed.
Questions to consider before making a family arrangement
How would the money be provided?
Consider whether any money would be intended as a gift, a loan or another type of arrangement.
What would everyone expect?
It is important that everyone involved understands the arrangement, including whether and when money is expected to be repaid.
Are there legal or tax implications?
Depending on how an arrangement is structured, there may be legal or tax matters that need to be considered.
What happens if circumstances change?
Consider what could happen if someone’s financial position, housing needs or personal circumstances change later.
Family arrangements can sometimes provide another way of meeting a financial objective without taking out a lifetime mortgage, but they can also affect the finances and expectations of other people involved.
Independent legal or tax advice may be appropriate
Where money, loans or property interests are being arranged between family members, appropriate professional advice can help those involved understand the potential implications.
A mortgage or equity release adviser can explain the borrowing options that may be available, but separate legal or tax advice may be needed for a family arrangement.
How do the alternatives compare?
Each approach works differently. The most relevant considerations will depend on what you want to achieve, your financial circumstances and what is important to you for the future.
The summary below highlights some of the main practical differences to discuss with an adviser.
There may be more than one way to achieve the same objective
For example, someone looking to repay a mortgage, help family or fund home improvements may have several different options available. Comparing the potential costs, commitments and longer-term implications can help inform the discussion with an adviser.
OPTION
WHAT IT MAY INVOLVE
A KEY CONSIDERATION
Downsizing or moving
Selling your current home and buying a less expensive property.
You would need to consider the financial, practical and personal implications of moving.
Using savings or investments
Using money or assets you already hold instead of taking additional borrowing.
This could reduce the resources available for future needs or other financial objectives.
Other mortgage options
Using another form of mortgage or later-life borrowing.
Regular repayments may be required and affordability may need to be assessed.
Restructuring existing borrowing
Repaying, refinancing or changing existing borrowing rather than replacing it with a lifetime mortgage.
A different borrowing arrangement may have different repayments, costs and terms.
Arrangements with family
Financial support or another arrangement involving family members.
Legal, tax, financial and personal implications may need to be considered.
Questions to consider before deciding
Before deciding whether equity release or an alternative approach may be appropriate, it can help to think about what you want to achieve and the longer-term implications of the different options.
What do I want the money for?
How much money do I actually need?
Do I need the money now or could my needs change over time?
Could I achieve the same objective without borrowing against my home?
Would I be comfortable moving home if downsizing were an option?
Could regular mortgage repayments be affordable?
What savings or other assets do I need to retain for the future?
How important is preserving property equity or inheritance to me?
How could my circumstances or housing needs change later?
What are the costs, commitments and implications of each option?
There may not be a single option that meets every objective. An adviser can help you understand the mortgage and equity release options that may be available and the trade-offs involved.
Frequently asked questions
Common questions about alternatives to equity release and the options that may be worth considering.
What are the alternatives to equity release?
Is downsizing an alternative to equity release?
Could I use savings instead of equity release?
Can I get a mortgage instead of equity release?
What is a retirement interest-only mortgage?
Could I refinance my existing mortgage instead?
Can family help instead of using equity release?
Do I have to move home to avoid equity release?
Which alternative to equity release is most suitable?
Should I consider alternatives before taking equity release?
Continue exploring equity release
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Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
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