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Finding an Alternative to an Equity Release Mortgage

The independent guide to alternative products to refinance or release equity from your home.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Finding an Alternative to an Equity Release Mortgage

Raising finances in later life can seem difficult if you approach mainstream lenders and try to remortgage in retirement.

Equity release mortgages are one of the common options, but they aren't suitable for everyone.

There are also secured and unsecured loans and other strategies which may help achieve the financing you need without accepting that the lender will sell your property once you enter care or pass away.

Here we explore some of the popular alternatives to equity release to identify some of the solutions that may be appropriate for you.

What Are Equity Release Schemes?

Equity release products free up financing held in your property and are usually available to retirees or those over 55.

This type of borrowing includes lifetime mortgages, which account for nearly all of the equity release products on the market.

However, you can apply for home reversion plans - which are slightly controversial.

The idea is that equity release allows you to borrow significant amounts without making any repayments.

When you die or move into care, the lender sells the property and settles the final balance with any excess proceeds passed onto your estate.

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What Are the Alternatives to an Equity Release UK Product?

There are several ways to release equity from your home without applying for a lifetime mortgage or comparable equity release product.

Examples including:

  • Downsizing to a smaller residence
  • Applying for a remortgage
  • Letting out a room or part of the property
  • Refinancing or selling a rental investment
  • Using a secured loan, or second charge mortgage
  • Taking out unsecured finance such as a credit card or personal loan

It's hard to give guidance without knowing your circumstances and how much you wish to borrow because the optimal product will vary.

You'll need to consider the amount of equity you own, the value of your home, any existing mortgage debt, your age and your health.

The Pros and Cons of Downsizing Instead of Using Equity Release Schemes

The option of downsizing means selling your current property, buying somewhere smaller or lower-cost, and using some of the proceeds to repay your debts.

If you're keen to relocate, you may find that a smaller property is cheaper to finance and easier to maintain in retirement.

It isn't always an easy decision, though.

Equity release means you retain the right to live in your home for life. In contrast, downsizing carries all the stress of relocating and legal fees associated with selling one property and buying another.

However, it's one way to release equity from your home, finance your retirement, reduce your outgoings, and avoid paying interest charges on a lifetime mortgage.

Transfers in Equity Release Explained

You can still move home or downsize if you have already released equity from your property through a lifetime mortgage.

Any equity release product from a lender registered with the Equity Release Council must have a clause allowing you to port your mortgage.

It must also have downsizing protection, which means you have the right to downsize and repay the equity release loan with some of the sale proceeds, with no early repayment charge, usually from five years onwards.

Borrowers may switch between equity release lenders, which works similarly to changing your mortgage provider.

Can I Use a Standard Mortgage as One of the Alternatives to Equity Release?

There may be scenarios where a normal remortgage with a larger loan value than your current product is suitable to increase your financing by using your equity.

However, you would be committing to long-term repayments for a fairly large sum and more than the capital borrowed.

Few lenders will consider a sizable remortgage for an older applicant, so a lot depends on the circumstances and how you anticipate repaying the loan.

Age limits vary considerably. Barclays, for example, won't agree to a mortgage where the borrower would be 70 at the term-end.

Other lenders will facilitate a remortgage where you might be 80 or 85 at the end of the term, so a whole-of-market broker can advise if this is a route you'd like to take.

An interest-only remortgage may be more accessible (because the monthly repayments will be much lower).

You'll need to have a clear credit history and a good level of equity to explore this option as an alternative to equity release.

What is a Retirement Interest-Only Mortgage as an Equity Release UK Alternative?

A retirement interest-only mortgage is an equity release loan, similar to any other lifetime mortgage, but with the ability to make repayments towards the interest.

If the product requires monthly instalments, you will need to pass an affordability assessment so the lender can verify that you have the means to keep up with the interest costs.

You still release equity, but the difference is that the balance can't accumulate further because you aren't allowing the interest to roll up into the loan.

The advantage is knowing what proportion of your property the lender is entitled to when it is sold - and what amount you can leave to your beneficiaries.

Subletting Instead of Equity Release

Instead of downsizing, some property owners who need to raise financing rent out a room or part of their property.

You can also consider short-term lets through Airbnb or a similar platform if you have more than one home or own a holiday residence.

Renting out a room comes with its own challenges but can raise sufficient finance to pay for renovation works or simply supplement your pension income.

What Are Reverse Mortgages as Alternatives to Equity Release?

Reverse mortgages mean the same as a lifetime mortgage - it's simply a different term used widely in lending markets in Australia, Canada and the US.

A reverse mortgage is an equity release product that involves borrowing a proportion of your property value secured against the home.

You don't normally make any repayments, and instead, the interest is rolled up and added to the original capital balance.

There isn't a fixed term because the loan continues until you pass away or go into long-term care - or the second partner dies or enters care if you apply through a joint application.

Any balance of the sale proceeds passes to your estate.

Personal Loans vs Equity Release Explained

Personal loans are a possible alternative to equity release as an unsecured debt.

As you get older, you might find it harder to achieve approval for a personal loan, but a lot depends on your income, credit rating and circumstances.

One of the positives of a personal loan is that it isn't secured against your property.

However, you'd normally be able to borrow much less, and the interest rates will be higher than a mortgage.

Credit Card Borrowing Instead of Equity Release

Credit cards are an unsecured debt that is rarely advisable since the costs will be considerably higher.

However, if you need to borrow a small amount and can easily cover the repayments, it might be faster to apply for a short-term credit card facility.

The protections may be attractive, such as buyer protection - a key reason most people book flights or holidays on a credit card.

The pitfall is that if you only make the minimum repayments, it might take a long time to clear the balance, and the interest will quickly add up.

Expert Support From the Equity Release Specialists

There are multiple ways to raise financing, release equity or secure a loan to help you achieve your financial goals - but knowing which option is most suitable and cost-effective isn't always easy.

If you'd like any assistance contrasting the alternatives to equity release we've listed here, please get in touch with Revolution Finance Brokers for guidance from the independent, whole-of-market professionals.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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