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. Each month, more than 7,000 people visit us to learn about equity release, so you’re not alone.

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. 

Others choose equity release to give the money to family members who need it for personal reasons, such as buying property. It can be fulfilling to see the money being used by loved ones, rather than them having to wait for an inheritance. Although waiting would gift them more money. 

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. You’ll never have to make repayments until the sale of your home
3. You cannot be evicted
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. The negative equity guarantee prevents you from ever owing more debt than the value of your home when it sells – this is a big one! It means any savings in your estate or other assets cannot be used to clear a shortfall in the debt repayment. 

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. 

The other disadvantage is the type of deal you can get through a lifetime mortgage or home reversion scheme. If you have had the former for a long time, even standard interest rates can skyrocket the total debt overall. And with the latter, the company will significantly undervalue their offer to reduce their own lending risk – in case the value of your property declines over time. 

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?

In general, it is financially more advantageous to downsize than it is to release equity. When you downsize, you can seek a fair price for your current home and a fair price for the home you buy. But with equity release, the financial aspect of repaying the loan is less appealing. 

If finance is the only thing that matters to you, then downsizing will usually be better. However, this might not be the only consideration when choosing between equity release and downsizing‚Ķ 

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.