Equity release is a financial arrangement that enables the owner of a house or other high-value possession to apply for funds that are currently tied up in the value of the item.
Equity release has the benefit of allowing the owner of the home to remain living in their own home whilst releasing funds based on its value. But equity release is not suited – or accessible – to everyone so here are some of the alternatives available to you if you want to raise funds and don’t have the savings.
Equity release has the benefit of allowing the owner of the home to remain living in their own home whilst releasing funds based on its value.
Downsizing / Relocating
Downsizing is one of the simplest options at your disposal if you are looking for something other than equity release.
If you live in a big family home but your children have now moved out of the house, then you may find you have more space than you need and more overheads than you want. In these circumstances it makes sense to downsize (move to a smaller and cheaper property) and free up some funds.
If this applies to you, it can be an easy and – dependent on the market in your area – fairly quick way to release large sums of money from your property for the things you need.
Similarly, if you happen to live in an expensive area of the country and you have no reason to stay located there, it makes sense to move out of your current premises and choose somewhere cheaper to live.
The main advantage to relocating or downsizing is that you can remain a homeowner whilst also releasing funds from your property. This obviously only works if you have equity in your home and can find somewhere you want to move to at a cheaper price.
Additionally, there is always the possibility that the market is not optimum when you need to move, meaning you could end up losing out on getting the best price if you need to move fast.
Another option is to look for money from other sources such as a loan. There are many different options available depending on the purpose for which you need the money.
Most lenders will want to know that you have some form of collateral (an item of value that is pledged as security in the event that a loan cannot be repaid) before they approve your loan application.
They will also take into consideration factors such as your age and credit history. Sometimes the lender may want your pension as collateral so you need to think carefully about your ability to repay so as to be confident you will not end up losing your valuable pension savings.
Interest rates can vary hugely so make sure you shop around, and keep your credit score healthy if you want to take advantage of the best offers.
Analysing your budget
Going through your budget and working out if there are any places you can make savings or earn money back is not a glamorous or quick option but it is an underrated one that can pay off in the long term.
If you don’t have enough cash in hand and are finding it difficult to make ends meet, then it makes sense to analyse your income and expenditure. With a bit of research on money saving websites, it’s possible to find some great ways of saving a little (or a lot) here and there.
Making efficiency changes around the home, shopping around and taking advantages of opportunities to earn tax-free cash from things like selling on eBay or offering holiday accommodation on sites such as Airbnb, could make all the difference if you’re looking for a little extra income.
You can also hire the services of a professional who can help with finding the best solutions in terms of savings. Of course, these savings aren’t necessarily going to reap immediate benefits if you’re looking for large sums, but over time they can really add up and this way of increasing your income doesn’t come with interest rates or put your assets at risk by way of collateral.
Renting your space
Another alternative to equity release is renting out a room if your home has spare space available.
Typically, a small room can help homeowners earn up to £7,500 a year under the government’s Rent a Room Scheme, and the best thing of all… it is tax free.
If you’re looking for ways to improve your bank balance without having to move out of your home, then this is a great way to boost your income. The scheme is open to homeowners and tenants alike, although if you rent, you will need to check your tenancy agreement to ensure you are not breaking any of the terms and conditions by entering the scheme.
Provided you find a reliable lodger, you could be looking at a stable, regular extra income for little investment other than possibly redecorating your spare room.
Borrowing from family
Borrowing from family is not an option open to everyone but if you have relatives who are willing and able to lend you the money, it is a far better option than getting a bank loan or having to sell your house in most cases.
If you are loaned money from family or friends, you are less likely to have strict repayment terms or high interest rates to contend with. However, there are some risks to borrowing from those you have a personal relationship with.
If you find yourself unable to repay the loan, it could potentially cause a breakdown in your relationship with the lender, so you need to ask yourself how you would deal with this situation and have a frank discussion first to make clear what actions would take place in these circumstances.
Equity release, like all options for raising money has its benefits and its risks. Before making any choices, it is advisable to seek professional advice about the best options available to you and take your time before making any decisions.