Alternatives to Equity Release in 2024

Releasing equity from your property can seem like an amazing way to free up some cash and do the things you want to do with it. Equity release is a big commitment though and it can have far-reaching implications.

Before setting your mind on equity release, you should consider what alternatives are available to you and see if something else is more suitable for your situation.

This guide breaks down the best ways to free up cash without equity release and gives some fantastic tips and pointers if you do indeed decide to go with equity release.

Let’s explore further.

Equity Release at a Glance

Before we look at the alternatives, it is best to get an idea about what equity release is and if it is something that is itself an option for you. There are some restrictions that apply to equity release, and you may find that you don’t qualify.

Equity release allows you to borrow money that is tied up in the equity you own in your property. A lender will pay the money as a lumpsum, regular payment or a combination of both.

The loan has no monthly interest payments, and the lender will instead sell your property when you die or go into long term care to recoup the loan.

The loan itself does have interest though, this rolls up each month and is charged at the time the loan is paid off.

Contrary to common belief, you can also Equity Release to purchase a property. For this, you will need a deposit of at least 50% of the property’s purchase price. 

To qualify for an equity release product on your own home in the UK you must:

• Be over 55 years old.
• Own the property outright or have a very minimal mortgage outstanding.
• Have a property that meets the lenders’ requirements.

What alternatives do you have to equity release? The good news is the alternatives are numerous so you might find something much more suited to your circumstances.

Selling Your Assets

Over our lifetimes we accumulate various assets. You might not even realise that you have assets or how much they’re worth.

Here are a few assets you might have without realising that you can sell them to free up cash.

Second Vehicles In the UK it is estimated that 25.7 million households in the UK have more than one car.

Of course, it might not be practical in all cases to sell the second vehicle but there are many households that could potentially do so. 

With the average UK used car being valued at £20,000, we aren’t talking small change either.

Selling an expendable second vehicle could be a great solution to free up cash from assets.

Jewellery That silver bracelet that has a broken clasp or that wedding ring from a previous marriage can all be sold for cash.

Precious metals are always sought after, and silver has seen a large surge in value over the last decade as modern technology relies on it for things like circuitry.

Branded watches are also great assets to sell on as makes like Rolex often hold their value over time despite external condition.

With these types of products, the money is actually in the mechanism and many people are surprised that their watch is still worth a lot of money even after years of ownership.

Shares/Stocks Unsurprisingly, there are many people in the UK that own stock or shares without knowing about it.

This is because employers used to include share options with employment quite prevalently in the UK.

For example, if you ever worked for Midland Bank and participated in the share scheme decades ago, you might have a nice stockpile of HSBC shares tucked away.

Take stock of the things items you own in your house and work out where the value lies and what you’re prepared to part with.

If you cherish your assets, you might not want to part with them so you should weigh up whether you need the funds enough to warrant selling something you have an attachment to.

For some assets you might need them appraised antiques are often undervalued by owners who either don’t understand an item is an antique or because they don’t know the current market value.

Remortgaging

If you’re considering equity release, without question the first thing you should do is explore the option of remortgaging with a standard mortgage product. 

Remortgaging is a way of realising the cash tied up in the equity you own and allows you to retain ownership of the property in the event you die or go into long term care.

The downside to a remortgage with a standard mortgage product when compared to equity release is that you will have a monthly mortgage payment to make.

But if you meet the lending criteria of a mortgage and can afford the monthly payments then you should carefully consider this option over equity release. 

Sometimes remortgaging is not an option, especially where age is a factor.

For example, you might find you’re too old to remortgage or the term on a remortgage due to age makes the monthly payments unaffordable. In these cases, equity release can be a great alternative.

Moving Home/Downsizing

A fairly simple solution to free up cash from equity is to sell the property and buy another property that is cheaper. 

For example, if you bought your home 40 years ago when you were starting a family, it might not be as practical now that the children have flown the nest.

If the property has 4 bedrooms and is valued at £500,000 you might be best served downsizing to a 2-bedroom bungalow worth £300,000 and pocketing the £200,000 difference.

As we get older our physical health often declines to some extent and getting around for some isn’t as easy as it used to be.

Bungalows are hugely popular for older people simply because they are more accessible than houses with staircases.

Take a look at your overall situation and decide whether or not moving home is a good option for you. 

You may decide it isn’t a good option because you don’t want the upheaval of moving home or you’re fond of the home that you have created and don’t want to start over.

It is best to look at the totality of your circumstances and then decide what is best for you on a personal level.

Re-budgeting

Our income and earning potential changes over our lifetime.

In some cases, this can be drastic, and you may have found your pension doesn’t cover the lifestyle you once enjoyed before retirement.

This can be disheartening to say the least and you should assess whether or not you should change your lifestyle and re-budget to live within your current financial means. 

Re-budgeting can alleviate immediate and ongoing money problems when done correctly and can be a fantastic alternative to equity release.

For some though it can be too much to stomach, especially if it means that you have to forego comfort at a time in your life where comfort is of utmost importance.

Carefully consider your finances and identify the areas you can save money.

Compare this to your expenditure and look at any shortfalls you have and whether the money saving can cover the difference. 

You should also look at any changes you can make such as cancelling unwanted or unused subscriptions as these can add up significantly over time.

Shopping around for cheaper insurance, energy and tv/internet deals can also save you money and might be the difference between living comfortably or struggling to make ends meet.

Withdrawing Funds from Private Pensions

If you have contributed to a private pension the government recently changed the rules to allow you to remove a certain amount from your pensions in a tax free way. 

Under the government rules you can now take up to 25% of your private pension pot as a tax free lumpsum.

Once you have taken the 25% you will then have 6 months to start withdrawing from the remaining 75% (which is taxable).

The remaining 75% can be taken as a lumpsum, invested in an annuity or drawn down as regular income.

Pension advice is always recommended when making a change to your pension and you should speak to your provider or financial advisor if you want to explore this option further.

For some, this isn’t an appealing proposition as although the tax free 25% is a great incentive, being forced to use the remaining 75% in a specified way within 6 months might not suit your long-term pension plans.

What You Should Consider if Deciding to Go with Equity Release

As you can see there are so many options available to many people when it comes to securing money later in life.

Of course, not all options will be available to everyone, and you might find your options for freeing up cash are limited to say the least.

In rare circumstances, equity release is the only option available to secure much needed money.

You will know which alternatives are available to you and can then assess whether they’re viable for you in your current situation.

If you decide that equity release is the best option for you then you should speak to an equity release broker.

Boon Brokers is a UK whole of market mortgage, insurance and equity release broker and we offer free no obligation advice.

Unlike most brokerages, we do not charge client fees at any stage of the process. 

If you’re using a broker, you should ensure that they’re a member of the ERC (Equity Release Council) as this will afford you more protection and provide you with high standard products. 

Boon Brokers is a proud member of the ERC, and this means you will get a product that among other things;

• Allows you to live in the property until you die or go into long term care.
• Protects you from negative equity with a no-negative equity guarantee.
• Is regulated by the FCA.

Unfortunately, there are many equity release companies to avoid in which brokers who don’t act in their client’s best interests. 

What Can I Use Equity Release for? Do I Pay Tax on it?

Earlier in this guide we mentioned remortgaging as a great alternative to equity release (and it is if you meet the lending criteria), but it does have drawback with lenders requiring you to tell them what you want to use the funds for.

Remortgaging is limited in this respect compared to equity release as an equity release provider won’t be at all concerned what you spend the money on.

A mortgage lender looking at a remortgage will likely be very reluctant to offer a remortgage if you want to spend the money in a way that doesn’t enhance your financial standing.

With equity release you have complete flexibility about how, when and why you spend the money as long as it is for legal means.

Once it hits your account it is up to you to manage and use as you see fit.

People often release equity for the following reasons (among many others);

• Improve lifestyle or income in later life.
• Holidays/Vacations.
• Gifting money to children for house deposits.
• Gifting money as early inheritance.
• Buying a new car.
• Buying a second property.

In general, the money received through equity release is tax free but there might be extremely rare circumstances where this isn’t the case.

For example, if you release equity and opt to have it paid as a regular payment and you have other income you might find it impacts your income tax liability.

If you’re concerned about whether your equity release will cause tax implications, you should discuss this with a tax advisor or your accountant.

In the vast majority of cases tax isn’t applicable on the actual equity release payments.

Conclusion

Releasing equity is a big decision and you should look at what avenues are open to you to raise funds outside of releasing equity.

You might find after you have considered your options that equity release represents the best choice for you.

At Boon Brokers we would love to assist you with your equity release and provide free no obligation advice, so discuss your goals with us by contacting Boon Brokers today.