Here at Online Mortgage Advisor we get lots of queries from homeowners looking to raise capital in later life, but who don’t necessarily want to go down the equity release route.
We understand that equity release isn’t right for everyone: some may find that standard mortgages, additional borrowing with secured or personal loans or other options may be more suitable. Fortunately there are plenty of good alternatives to equity release in the UK, and we’ll explore the most popular options in this article.
For advice that’s tailored to your situation, we suggest you get in touch with a brief outline of your circumstances and goals, and we’ll put you in touch with one of the expert advisors we work with who can talk you through some alternatives to equity release schemes that will be suitable for you.
Equity release is the act of unlocking the money in your home using various products that are usually only available to homeowners over 55 years of age.
Also known as a ‘reverse mortgage’ in the US and other countries, equity release products include lifetime mortgages, which now make up over 99% of the equity release market, and the older home reversion plans, which are more controversial but are still offered by a couple of providers.
The main benefit of equity release is that it gives access to access large sums without incurring any repayments (the outstanding balance is settled only after the owner’s death or on moving into residential care), but they do involve some risk and will reduce the overall value of the owner’s estate.
For more information on equity release and the various types that are available, see our main equity release section here.
Is there an alternative to equity release?
There are several options other than equity release for pension-age homeowners to gain access to funds.
Renting out part of your home
Refinancing an investment property
Secured loans (second charge mortgage)
Which of these options and the amount of money that is available to you will depend on a number of factors, including your age, health, loan-to-value (LTV) of your home (if you have a mortgage on it), whether or not you have investment property and a number of other considerations.
We will explore each option in more detail in the remainder of the article.
‘Downsizing’ simply means selling up and moving into a less expensive, usually smaller property, freeing up some of the money tied up in your home in the process.
Downsizing vs. equity release
If you have no particular desire to remain in your current home and perhaps even prefer the idea of a smaller property in which maintenance costs could be much lower and day-to-day upkeep is less physically demanding, downsizing could be a good option for you.
There are a number of issues to consider when deciding on whether to take the downsize or equity release route. Equity release allows you to stay in your current home, whereas downsizing means moving to a new, probably smaller home. A move at this point in life could be seen as a hassle or as an exciting new beginning - depending on your perspective!
Staying put will certainly spare you from the expense of moving house, including stamp duty, solicitors’ fees, estate agent fees, survey costs and any unexpected outlays. However, releasing equity will usually reduce the value of your home (unless prices in your area increase significantly by the time of sale) and can incur large interest charges on your estate.
Is downsizing an option for everyone?
Downsizing is usually a straightforward option for older homeowners as long as their property is in sell-able condition - but how much choice you’ll have depends on a number of factors.
If you have paid off all or a significant portion of the mortgage on your current home, you may not have to take out another mortgage. As a cash buyer this puts you in a strong position, as you’ll be an attractive prospect to sellers looking to make a quick sale.
If you’re in the position of needing to take out a mortgage on your new property after selling your home, you will need to find a lender that is willing to lend to retired customers (see next section - equity release or mortgage?).
Transferring equity release
Finally, downsizing or moving house should be possible even if you have already released equity in the form of a lifetime mortgage.
All equity release Council plans must include portability with a downsizing protection option to enable borrowers to downsize (typically after 5 yrs) and repay without early repayment charges.
Similarly switching equity release providers is an option for those with lifetime mortgages, and the process is much like changing mortgage providers with a standard mortgage. Depending on when you took out the lifetime mortgage and what type of deal you entered into, this can be a way to save money if you’re out of contract and find a better rate.
Standard (re)mortgage: equity release or remortgage?
Remortgaging your existing home with a larger loan is a popular way to get access to funds, but you will need to be eligible for standard mortgage products to access this option. This is because this type of remortgage involves committing to repayments for larger sum borrowed; a risk that many lenders may not be prepared to take.
All lenders are different and set their own age limits: Barclays won’t usually lend to borrowers who will be 70 by the end of the mortgage term, for example, but some lenders will extend the upper limit for standard products to age 80 or even 85, so it’s worth seeking out a broker with access to the entire market to find a willing lender.
You are more likely to be eligible for a standard mortgage if you have a regular retirement income, a clean credit record and a large amount of equity in your current property and/or plan to take out a smaller loan. You may also want to consider interest only mortgages, as to qualify for these products you only need to demonstrate that you can meet the monthly interest payments.
If this is an option you’re keen to pursue, get in touch here or call 0800 304 7880 and we’ll match you up with an advisor who’ll be happy to discuss your plans.
Retirement Interest Only mortgages
There are also some interest only products tailored towards older borrowers that are similar to standard mortgages with a few key differences. For example a Retirement Interest Only (RIO) mortgage, which is a class of mortgage that sits between lifetime mortgages (a type of equity release) and a standard Interest Only mortgage.
RIO mortgages do involve equity release, but they allow you to pay off the interest in monthly installments, as well as capital payments if you wish to do so. This stops interest from mounting up as quickly as it would do in a lifetime mortgage, so if your main concern around equity release is protecting the value of your estate, you could consider a RIO mortgage.
Eligibility for RIO mortgages
As there are repayments to be made on a retirement interest only (RIO) mortgage you will need to demonstrate that you can cover them, e.g. through your pension or some other income. However, these will only be interest payments, which will work out a lot lower than a repayment mortgage on the equivalent loan amount.
Renting out part of your home
If you need to raise some cash but don’t like the idea of moving somewhere smaller, renting out a room or a larger part of your home may be an option to consider. Platforms like AirBNB have made it easier than ever to let your home on a flexible basis, and this is a great way to test whether you might want to get a longer-term lodger.
Renting a room can be a great way of getting regular income in retirement, and some people enjoy the opportunity it provides to meet new people and remodel their home. However, it may not be an option for you if you don’t live in an area that attracts a healthy stream of visitors, and can be hard work if you’re not in good health and don’t have help.
Refinancing an investment property
If you’re lucky enough to any investment property in your portfolio, you’ll have more options in terms of raising funds in later life. Ways of doing this could include:
Selling an investment property
Second mortgage (secured loan) on an investment property
Refinancing an investment property on an interest only basis
All of the above should be viable options for older borrowers, and most lenders will consider applications for secured loans or interest only mortgages on buy-to-let property. Get in touch with us today if you’re interested in discussing the best equity release alternatives for investment properties, with one of the trusted experts we work with.
Secured loans (also called ‘second charge mortgages’ or ‘second charges’) are another option for raising large sums by borrowing against your home (or an investment property), rather than releasing equity from it. Lenders can offer quite favourable interest rates on these products, because you are effectively offering your home as collateral.
If you’re comfortable with the risk, this option can allow you to borrow large sums of money, and there are several lenders that offer secured loans or second charges to older borrowers.
However you will need to be sure you can cover the repayments, which can be higher than those on a standard mortgage. And you’ll need to be able to prove that you can cover them. Find out more about secured loans here.
Equity release or personal loan?
Another equity release alternative you could consider is an unsecured personal loan. These can be harder to come by as you get older, but each lender is different, and provided you have a good credit record, many banks and other providers will lend on an unsecured basis to borrowers up to 80.
An advantage of personal loans is that you don’t need to put up your home as a security as you would do with a second charge mortgage, however you may not be able to borrow as much, and the interest rates are usually higher because the risk is greater for the lender.
Finally if you’re looking to raise a smaller sum and can cover the repayments, credit cards can be a good option for managing your cash flow and making one-off purchases.
Most credit cards also have in-built buyer protection which can be very useful when paying for larger items such as airfares or other travel expenses - but interest rates can shoot up. There are a number of credit card providers that offer interest free periods on balance transfers, so this might be worth considering.
Q. Reverse mortgage vs equity release: what’s the difference?
A ‘reverse mortgage’ is simply a piece of US terminology used to describe what we call equity release in the UK.
Q. Is equity release the same as remortgage?
‘Remortgaging’ can simply mean switching to a new mortgage provider in order to get a better interest rate.
However, some people choose to release a certain amount of equity as part of the new mortgage deal in an ‘equity release remortgage’, which is why the terms are sometimes conflated. In a standard mortgage, this means extending the amount being borrowed, thus increasing the overall loan amount and incurring higher repayments.
In contrast, a lifetime mortgage (a type of equity release available to over 55s only) does not incur any regular repayments, and the interest is not repaid until the property is sold.
Speak to an expert on equity release alternatives today!
With so many options available to homeowners looking to raise funds without releasing equity, it can be hard to find the best solution for you. The good news is that we work with advisors who are experts in equity release.
If you have questions and want to speak to an expert for the right advice in your circumstances, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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