Equity Release or Downsize? Complete Comparison & FAQs

Are you curious about equity release or downsizing? This page is here to help. We'll guide you through everything you need to know about these two options.

If you’re feeling confused about equity release, don’t worry. We understand it can seem a bit tricky, which is why we’ve prepared this clear guide on:

• What equity release means.
• How to get a fair quote.
• Reasons to release equity from your home.
• The good and bad sides of equity release.
• How it’s possible to downsize with equity release.

Another option to consider is downsizing. This is when you sell your home and move to a smaller, less costly place. We’ll also talk about this and help you decide if it’s a better choice for you.

We understand your situation and have lots of useful advice. So, let’s start exploring your options together.

The common reason to release equity

The most common reason that seniors release equity is to make their twilight years more comfortable and relaxing, allowing them to see and do things they otherwise may have struggled to afford. 

Some people release equity to help family members during their lifetime. Doing so can reduce the estate they leave, affect benefits and create tax considerations; compare this with retaining the property and money for future needs.

What are the advantages of equity release?

The main advantages of equity release schemes are:

1. You can get a lump sum amount or sometimes a drawdown facility
2. Many lifetime mortgages allow interest to roll up without regular payments, but some require interest payments for a set period. Optional repayments, limits and any early-repayment charges depend on the contract.
3. The right to remain depends on meeting the occupancy and other conditions of the plan.
4. The money you receive is tax-free
5. You can choose to pay interest on lifetime mortgages – or not
6. You continue living in your current home
7. For a plan meeting the relevant Equity Release Council standards, the right to remain depends on keeping the property as your main residence and meeting the contract terms. A no-negative-equity guarantee limits repayment to the net sale proceeds when its conditions are met; it does not stop the balance growing or make the product risk-free.

What are the disadvantages of equity release?

The main disadvantage of using a lifetime mortgage or home reversion scheme is that your will beneficiaries will lose out on some inheritance. There are ways you can safeguard against all of the value of your property being taken by the equity release company, but it remains a fact that some inheritance will be eaten up after selling your home. 

Unpaid lifetime-mortgage interest can compound over many years. A home-reversion provider buys an agreed share below open-market value because the plan includes continued occupation; compare the long-term costs and rights of each arrangement.

An alternative option – downsizing

If you have considered equity release as a way to make your senior years more financially comfortable, then you’ll have likely considered downsizing as well. By selling your current home and moving into a smaller home, you could create a nest egg for yourself.

So, should you choose equity release or downsize? 

Is it better to do equity release or downsize?

Downsizing can release money without a lifetime mortgage, but the financial result depends on both property prices, transaction taxes, moving costs and future housing needs. Compare these costs with the fees, interest and conditions of an equity-release plan.

Neither option is best for everyone. A realistic comparison should include the amount you need, the home you would move to, the costs of moving and borrowing, and your preferences about staying in your community.

Equity release vs downsizing (key considerations)

To help you make a decision, here are some considerations and questions to ask yourself:

1. Do you have a sentimental attachment to your home? Some people find it harder to move away from their current home because they lived there for so long, raising a family and possibly with a recently deceased partner. It can be tough to move away.
2. Do you have an appetite for the property market? Selling and buying a home can be extremely stressful and you may not wish to get involved with such a process in later life. 
3. How important will your inheritance be to beneficiaries? Are they already financially secure or will they need as much support from you as possible?

Can you downsize with equity release?

If you have already taken out an equity release plan, it’s still possible for you to move home and even downsize. However, this will need to be agreed upon with your lender and can become complex. If the property is a suitable alternative, then the Equity Release Council states that it should be allowed.