Alternatives to Equity Release

Home Alternatives to Equity Release
Sunny Avenue
Financial, Mortgages Sunny Avenue
3 Apr 2023

Retirement planning can often be left to the last minute, especially during tough times. However, it's never too late to explore your options and make informed decisions that can help you secure a comfortable retirement. Equity release is a popular option, but it's not the only solution available to you. 

In this insight, we will explore some of the alternatives to equity release that you can consider for your retirement planning needs.

Remember, even if you feel like you're starting late, there are still options available to you, and it's never too late to start planning for your retirement.

Key Takeaways: 

  • Retirement planning can be done at any age.
  • Equity release is an option, but other alternatives should be considered.
  • A diverse retirement income plan is essential for financial stability.
  • Alternative options to equity release include downsizing, renting out a room, continuing to work, and looking into savings options.

Alternatives to Equity Release

There are a few alternatives to equity release that you might want to consider:

Downsizing your home

Downsizing your home might be a better option than using equity release to help with your retirement. When you downsize, you sell your current home and buy a smaller one, which could release some of the equity you have in your property without taking out a loan. This could help reduce your living expenses and potentially leave a larger inheritance for your loved ones. However, downsizing may not be suitable for everyone and there may be emotional factors to consider.

Earn additional income through the rent a room scheme

The Rent a Room Scheme is a government initiative that allows you to earn up to a certain amount of tax-free income by renting out a furnished room in your home. This can be a potential alternative to equity release if you want to boost your retirement income. You can earn up to £7,500 per year tax-free, and share facilities with your lodger. However, you'll have certain responsibilities as a landlord, and you may not want to live with a stranger.

Continue working

This might not be the planned ideal alternative but working longer can be a viable equity release alternative. It allows you to continue earning income and contributing to your retirement savings. You could consider paying additional income into a pension to increase your retirement savings, potentially leading to a larger pension when you eventually retire.

Look into your savings options

When planning for retirement, it's best to use your other savings before considering other sources of money. For instance, using up your private pension pot last can ensure that any remaining funds in it are passed on to your beneficiaries without inheritance tax.

A Lifetime ISA (LISA) is one way to save for retirement alongside your pension. While commonly used for saving towards a first home, a LISA can also be a useful retirement savings vehicle. The government provides a 25% bonus on everything you save (similar to tax relief added to a pension), and you can withdraw the money without penalty from age 60 (or when buying your first home).

A significant benefit of a LISA over a pension is that the money you withdraw isn't subject to income tax. However, the maximum annual contribution is £4,000, and the total lifetime contribution is limited to £128,000. Despite the limits, a LISA can be an excellent addition to your pension savings if started early enough.

Selling unwanted/unneeded goods

Selling unwanted items is a great alternative to equity release for additional funds during retirement. As you approach your golden years, you may find that you have possessions that you don't need or use, such as a second car.

Selling these items can provide you with instant cash without borrowing or losing assets. You can use the money to supplement your retirement income, pay off debt, or save for retirement.

Before selling any items, you should decide which ones you no longer need or use. It's important to consider sentimental value and future usefulness. You can sell items through online marketplaces such as facebook. However, be aware for scams on facebook marketplace.

Looking For Equity Release Advice?

If you're thinking about releasing equity from your property, but unsure where to start?
We can help you find an equity release specialist to offer you the very best advice. Complete our Sunny Fact Find form to provide us a bit more detail about your circumstances and we'll find the best-suited adviser for your needs.
Your appointed adviser will contact you to discuss how they can help, you decide how to proceed.

How can equity release be used for Retirement?

Equity release is a way for retirees to get money from their property without having to sell it. There are two main types: lifetime mortgages and home reversion plans. With a lifetime mortgage, you can borrow money secured against your property and pay it back when the property is sold. With a home reversion plan, you sell a percentage of your property to a provider and get money in return. You can still live in the property, but the provider will get a share of the sale proceeds. Equity release can help you get extra money for retirement, pay for care, or make home improvements. But, it's important to get independent financial advice before doing it.

Equity release can help with retirement, but it should not replace a pension. Pensions offer consistent income during retirement, while equity release is more flexible but has greater uncertainty and risk. Equity release can be costly and the amount you can receive depends on your age and property value. With a lifetime mortgage, the debt may increase over time. It's essential to have a diverse retirement plan that includes pensions, savings, investments, and potentially equity release, to ensure financial stability in retirement.

Does Equity release affect state pension?

Getting equity release won't affect your state pension because it's not based on how much money you have. But if you use a lifetime mortgage or home reversion plan to add to your savings, you might lose some of your pension credits. 

For example, let's say you have a total of £15,000 in your bank account and you decide to take out an equity release scheme to boost your savings. This means you have £5,000 above the £10,000 limit.

For every £500 you have above the limit, you'll lose £1 in pension credits. In this case, you have £5,000 - £10,000 = £-5,000 divided by £500 = -10. So, you'll lose £1 in pension credits for every ten £500 increments, which means you'll lose £10 in pension credits.

So, if you were receiving £50 in pension credits before taking out the equity release scheme, you would now receive £40 in pension credits (£50 - £10).

What is the best alternative to equity release?

When it comes to finding the best alternative to equity release, downsizing your home is often the most recommended option. By selling your current property and buying a smaller, less expensive one, you can free up funds for your retirement without the drawbacks of equity release.
However, it's important to remember that everyone's financial situation is different. Downsizing might not be the best solution for everyone. That's why it's essential to seek financial advice when planning for your retirement. An independent financial advisor can help you explore all the available options and help you make the best decisions for your individual circumstances.

Advice on the Alternatives To Equity Release

Advice is personalised, so it's important to speak with a professional who can understand your unique situation. While there are different options available online, seeking guidance from an expert is essential to find the right solution for you. If you're considering retirement planning, we strongly suggest seeking financial advice to ensure you make the best decision for your future.

Getting the right advice on the best alternatives to equity release for you is critical. If you're not sure where to start with getting advice, complete the retirement planning Sunny Fact Find. The answers you provide help us to find the best-suited adviser for your needs. Your adviser then contacts you for a no-obligation conversation on how they can help. You decide how to proceed.


Stuart is an expert in Property, Money, Banking & Finance, having worked in retail and investment banking for 10+ years before founding Sunny Avenue. Stuart has spent his career studying finance. He holds qualifications in financial studies, mortgage advice & practice, banking operations, dealing & financial markets, derivatives, securities & investments.

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