If you need to boost your income later in life, equity release is becoming an increasingly popular choice. But before you dive in, it is worth exploring the alternatives and considering their pros and cons.
What is equity release?
Once your children have grown up and left home, you might have more space in your current house than you need.
Downsizing by selling and moving to a smaller, less expensive property can free up some extra cash.
But there are some disadvantages to consider: for example, if the property market is falling when you come to sell you might not be able to make as much money as you’d hoped – and it could take you a long time to find a buyer or a place to move to.
Plus, there are the extra costs of moving to factor in as well, such as estate agents’ and solicitors’ fees, not to mention stamp duty, and even having to potentially buy new furniture or redecorate to suit your tastes.
And don't forget to take into consideration the fact that you’ll have to leave what might be your longstanding family home.
Downsizing to raise money in retirement
Rent out a room
If your home has more space than you strictly need, you could think about renting out a room.
Under the government’s Rent a Room scheme you can earn up to £7,500 a year from a tenant before any tax is due on the proceeds.
This could bring in some much needed extra money while allowing you to remain in your current property.
Pros and cons of getting a lodger
You could look at forms of borrowing other than equity release, provided you have enough pension income to make future repayments.
For example, you may be able to remortgage your home – banks and building societies are increasingly allowing older people to take on debt in this way.
Mortgage rates are particularly low at the moment, especially if you have a large amount of equity in your home or have paid off your mortgage altogether.
How to remortgage in later life
Help from your family
You could talk to family members about your options; although this might not be the easiest subject to broach, they may prefer to lend or give you money rather than have you take out an equity release plan, which could end up eating into their eventual inheritance.
If they do decide to send some money your way, make sure you're both clear about whether you're receiving the cash as a gift or a loan to avoid any awkwardness later down the line.
A moral dilemma over gifts and loans
If you are struggling to live within your means in retirement, you could start by looking at your income and regular outgoings to see if there are any areas where you could cut back.
There are plenty of tips and information to help you save money on our Deals & Saving money article hub.