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Alternatives to Equity Release
Equity release can be a viable option to support you in retirement as well as giving you the financial flexibility to do things you wouldn’t normally be able to do. Before considering equity release it’s well worth looking at the alternatives available to you.
Here we’ll take a look at some of your options and what it may mean for you:
Budgeting
There are two ways to manage your cash flow. The first is by increasing your income and the second is to decrease your expenditure.
A great place to start decreasing your expenditure is by taking a look at your bank statements. You’ll be able to see clearly what’s going in and out of your account and quickly spot costs that have fallen off of your radar, e.g. TV subscriptions, any contracts that have rolled over into a ‘monthly rolling contract’.
With your bank statements to hand you can draw up a list of your monthly/annual costs. One way of breaking these down is by needs and “nice to haves” . You need gas and electric V.S. it’s nice to have 3 TV subscriptions but not essential.
Once you’ve made a list of these costs you’ll clearly be able to see any expenses you can cut immediately. As a general rule of thumb, if you don’t recognise the expense, you’re probably not using it anymore.
A lot of the time, even though costs are essential, there are plenty of opportunities to shop around and get more favourable rates for things such as:
- Car Insurance
- Gas and Electric
- TV and Broadband
- Mobile Phone
- Credit Card rates
Martin Lewis is a household name and there’s lots of great advice on moneysavingexpert.com
Get help from your family
You could ask for help from your family. This can be a difficult conversation to have as it’s highly likely that you’ve spent your life looking out for them so it may not feel natural or welcome to you.
While it’s not an easy conversation to have, they may prefer to help you than allow you to sign up to an equity release deal which could leave them with little or nothing to inherit.
- Not only that, help doesn’t have to be financial. They may be able to help you in other ways that alleviate that financial burden such as:
- Simply helping out with day to day activities like cooking for you.
- Co-sign a loan with you for a more favourable interest rate.
- Help arrange your finances by speaking to lenders and arranging payment plans.
- Help to access local funds that you were unaware of.
- Prepay certain bills that help relieve financial stress.
A lifetime mortgage is a big commitment that impacts you and the rest of the family. Conversations around money have typically been a taboo subject but hopefully you can see that having that conversation might serve as a suitable alternative to releasing equity from your home.
Check out this article If you want more information on what interest rates you may be able to get on a equity release plan.
Get a part time job or start your own business
There’s a wide range of part time jobs that may be suitable for you as an alternative to equity release in that they will supplement your income.
For some people this can be a real opportunity to go and do what you’ve always wanted to do. It could be doing a job, supporting a cause or vocation you’re passionate about. Some people enjoy giving back to the community by working with the young or supporting the elderly.
It can also be a chance to give back and help others benefit from your expertise, evidence from startups.co.uk suggests that 64% of businesses are started by the over 45’s and that they are typically far more successful than their younger counterparts.
Rent a room out
Renting a spare room has become an increasingly popular way to subsidise personal income and can be considered as a strong alternative to equity release.
There are various options open to you but one of the most popular is to utilise AirBnB where you let either a room, or your entire property, to people looking for temporary accommodation whilst they travel. There are a number of factors to consider but this can be a great way to supplement your income.
Another popular way to make a bit extra is by taking on a lodger, under the government’s rent a room scheme you can earn up to £7,500 tax free. Websites like spareroom.co.uk are used by people looking for permanent accommodation, where they can live their day to day lives. Typical room rates vary by region but below is a map from the ONS that indicates what people typically charge region to region
Of course there are a lot of factors to consider, here are some of the pro’s and con’s of each
| Spare Room Pros | Spare Room Cons |
|---|---|
| Can be a great source of supplementary income. | Depending on this as a primary source of income has inherent risk associated with it (occupancy rates etc). |
| There are a number of opportunities for you to vet applicants. | You’re renting a room to someone you don’t really know. |
| You have control over the type of agreement you’re prepared to have, be it ‘excluded tenancy’ or ‘excluded licence’. | There are fees associated with using the platform. |
| AirBnB Pros | AirBnB Cons |
|---|---|
| Can be a great source of supplementary income. | Depending on this as a primary source of income has inherent risk associated with it (occupancy rates etc). |
| You get to use AirBnB’s platform to advertise on, which has millions of users. | AirBnB may enforce stringent rules before you can use their platform. |
| Can use to capitalise on seasonal trends or if there are one off events that draw large numbers of people to your area. | There are Fees associated with using the platform. |
Unsecured and Secured Loans
Unsecured personal loans don’t require you to put any collateral down and are usually given to people with high credit scores.
If your credit isn’t good enough to qualify for an unsecured personal loan, a secured personal loan may be a better option to meet short term financing needs. A secured personal loan uses an asset such as your house or car as collateral and in fact, some lenders do not need a minimum credit score to apply for this sort of loan.
Secured personal loans, on the other hand, are riskier for you since you might lose your asset.
If you want to find out what your credit score is, Experian and Equifax are two of the major credit scoring agencies used by lenders.
Please note: with the rise in fraud associated with financial products it’s always worth making sure you’re as well protected as you can be. Fraudsters can use legitimate financial products as a front… we’ve put together a short article on equity release scams, what you can do and what to look out for to make sure you’re as safe as can be.
Credit Cards
The credit card market is highly competitive and for a smaller sum, a cheaper option could be to take out a credit card with a low interest rate. A 0% purchase credit card means you pay no monthly interest and may be suitable to cover your short term financial needs.
Source: uswitch.com
Does equity release affect my credit score?
Grants
Your local government maybe able to assist with home adaptations. It will have its own set of guidelines for the sorts of assistance it will provide, as well as the requirements you must meet in order to receive assistance.
It’s worth
- Adapt – For example, have a wetroom installed.
- Improve – e.g. access to the house with a concrete ramp or stairs.
- Repair
This could be in the form of a grant or loan or It could be by providing labour, tools, or cheap materials to help you carry out the work.
They may also be to provide details of builders who can carry out the work, or provide free or low cost surveys, as well as advice on carrying out repairs.
There are also a number of charities set up which offer grants. The FILT (Foundations Independent Living Trust) works with the local home improvement agencies to help vulnerable and disadvantaged households remain in their own homes.
You can search the online directory of home improvement agencies and find one local to you at https://www.findmyhia.org.uk/
Home Reversion Plan
With a home reversion plan, you sell all or part of your home at less than the market value in return for a cash lump sum, a regular income, or both.
Your home, or the part of it you sell, typically 20% to 60%, now belongs to the lender. However, you’re allowed to carry on living in it until you die or move out, paying no rent.
Depending on your age and medical conditions, you might be able to access more funds.
Energy
As the smart meter rollout continues across the UK, the opportunity to see what we’re spending and make savings has grown.
There are really simple measures that we can implement such as changing our bulbs to energy efficient LED’s as well as turning the heating down.
Simpleenergyadvice.org state that a 1 degree reduction can result in a 10% saving on our annual household heating.
There’s lots we can do to help reduce our utility bills, things like:
- insulating your loft and cavity walls
- draught-proofing windows and doors
- upgrading your boiler
- installing double glazing
- using alternative sources of energy, such as solar power
and you maybe eligible for a home energy grant.
Alternative car ownership, PCP vs HP vs buying a used car
Generally speaking, we like to own our property in its entirety and with a car typically being our second biggest asset, there’s a lot to consider.
The table below briefly describes what the different types of agreement are and how they work:
| Hire Purchase (HP) | Purchase Contract Purchase (PCP) | Used Car | |
|---|---|---|---|
| What is it | Hire Purchase (HP) is a way of paying for a car in installments while you use it. | PCP is similar to HP but it is an agreement to pay off the amount the lender predicts the car will lose in value over the length of the contract. | In this example, a used car is one that you buy and own outright. |
| How does it work | You pay a deposit and then have equal payments split across the term. At the end of the term you will own the vehicle. | Like HP, you pay a deposit at the start and continue to make monthly payments. Unlike HP you have a balloon payment at the end of the term. | You buy a used car, either privately or from a car dealership and own it outright. |
| Cost | Typically higher monthly payments than PCP. | Usually lower cost than HP but due to the nature of the agreement there’s a balloon payment at the end. | No additional purchase costs. |
There are a number of different scenarios that can make PCP, HP or owning a used car a better option than the next.
It wouldn’t be fair to say that owning a car outright is always better than having a car on PCP. The maintenance costs, as well as running costs of older cars can make them more expensive over a longer term. Couple that with the fact we’re moving into the era of electric cars and the financial incentives associated with that – that all adds up to a lot to think about.
It really is worth looking at your lifestyle as a whole, now and in the future when considering what’s best to do regarding your current car.
Downsizing
Simply put, downsizing is the process of relocating to a smaller home. You may be considering this step for a variety of reasons, such as improving your finances, lowering your costs, or relocating to a more appropriate second property or a better area, but there’s a lot to consider.
Downsizing is something that’s readily apparent to a lot of people when the kids have grown up and moved out, we’ve listed some pros and cons for you to consider:
| Pros of Downsizing | Cons of Downsizing |
|---|---|
| A smaller property is easier to maintain and as such helps you maintain your independence. | You may have built up friendships over many years that you’re leaving behind. |
| By downsizing you will likely release some equity from the sale of your old home that you can use as you wish. | Less space may be easier to maintain, but it also means less room for visitors and hobbies. |
| It’s a chance to move to a location of your choice. | The location may be nicer but does it offer you the chance to do everything you find fulfilling? |
When it comes to moving home there’s a huge emotional upheaval associated with downsizing, and if this isn’t managed carefully can result in bigger costs.
It’s not unheard of, that when people move away to downsize, they find they don’t like the new life, then spend a great deal of money getting back to where they were (if they can).
How we can help with suitable alternatives to equity release
Equity release can be an attractive prospect if you’re looking to access a lump sum and we have a free calculator, but as you can see above there are many alternatives to equity release.
If you do find yourself in a situation where you’re unsure of what you should be doing next, and you’re unsure if the alternatives to equity release listed above are suitable, we’re here to help and support you.
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