by Nirvana
A Business for Social Change
Cost Effective New Housing for the Elderly & Persons With Disabilites
What Are the Alternatives to Equity Release in The UK?

What are the alternatives to Equity Release?

As you go further in life and responsibilities continue to increase, you may need to get other sources of income apart from your day job. One of these sources of income is equity release. To explain what equity release is, let's understand what equity is. Equity is the monetary value of your house minus the mortgage left to be paid on the property. In other words, equity is the total amount of money you will get if you sold your house.

Equity release is a way of getting a sizable portion of that money without actually selling the house. It is the process of receiving cash or income in exchange for a partial value of the house. An equity provider does this by using a type of mortgage or by buying a portion of the home with an agreement that you can keep living in the house for as long as you want. This option is the only option for people who have completed their mortgage payments or most of them. Equity release provides a large sum of money for people who need to cater to large expenses at an advanced stage of their life.

While equity release sounds very interesting and beneficial, it has many pitfalls that could put people into trouble. The first problem with equity release is that you don’t get the full market value for your property. The total amount of money you get from equity release plus the value of your home will be way lesser than what you will get in a competitive open market.

Also, it reduces the number of inheritances that your beneficiaries can enjoy. They will also receive less than they should have gotten if you didn’t go for equity release. There are other numerous pitfalls associated with the equity release system, but most of them depend on the type of equity release you adopted (be it mortgage or lump sum).
Seeing as these pitfalls are a bit serious, there are alternatives to equity release. These alternatives provide you with cash while you don’t have to lose your property or its inherent value. One of the most effective alternatives is downsizing.

Downsizing, in this context, means saving up on expenses. Therefore, one of the ways you can downsize is by selling the property and moving to a cheaper or smaller property. Because at the point of considering equity release, you are most likely at an advanced stage in life, this means that you are no longer working for a salary and can probably draw from your pension.

As a result, you have the freedom to live anywhere without it affecting your finances. This means that moving to a less expensive and smaller house after selling the property means that you get accommodation while receiving the full market value for your property.
Other forms of downsizing include cutting down on maintenance costs, running costs, and probably council tax, if possible. While this form of downsizing may not be able to fully fund your lifestyle, it will complement your pension and cater to your expenses.