Equity Release vs Downsizing: Which Option Is Right for You and what are the alternatives?

As retirement approaches, many homeowners start to consider how best to make use of the value tied up in their property. If you’re over 55 and own your home, two of the most common options are equity release and downsizing. But which one is right for you?

In this guide, we’ll explain the key differences, pros and cons, and help you understand which solution could suit your lifestyle and financial goals best.

What Is Equity Release?

Equity release is a way to access some of the value locked in your home without having to move. The most popular form in the UK is a lifetime mortgage, where you borrow money against your home but continue to own it. The loan, plus interest, is usually repaid when you die or move into long-term care.

It allows you to stay in your property while receiving either a tax-free lump sum or smaller amounts over time (known as a drawdown plan).

What Is Downsizing?

Downsizing means selling your current home and buying a smaller or less expensive one. The difference between the sale price and the cost of your new property becomes available to you as cash, which can then be used however you choose.

Many people choose to downsize to reduce bills, simplify their lifestyle, or move closer to family.

Equity Release vs Downsizing: Key Comparison

Pros and Cons of Equity Release

Advantages:

• Remain in your current home
• Access to tax-free cash without selling
• No monthly repayments required (unless you opt in)
• Flexible plans with drawdown options

Disadvantages:

• Interest compounds and reduces your estate
• May affect eligibility for certain benefits
• Set-up and legal fees apply
• Not suitable for everyone – professional advice is essential

Pros and Cons of Downsizing

Advantages:

• Typically leaves more for inheritance
• Reduced utility bills and property costs
• Opportunity to move to a more manageable or accessible property
• No loan or interest to repay

Disadvantages:

• Emotional stress of leaving your home
• Estate agency, solicitor, and moving fees
• Limited supply of suitable smaller properties
• Possible compromise in space or location

Which Option Is Right for You?

Here are some questions to ask yourself when deciding between equity release and downsizing:

• Do you want to stay in your current home?
• Are you emotionally ready to move?
• How much cash do you need, and what will you use it for?
• Is it important to leave as much inheritance as possible?
• Are there suitable downsizing options available in your area?
• How do your health and long-term living plans factor in?

Some homeowners choose to downsize first, then consider equity release later if needed.

Speak to a Qualified Equity Release Adviser

Choosing between equity release and downsizing is a major financial decision, and there’s no one-size-fits-all answer. It’s crucial to speak to a specialist who understands the equity release market and your personal circumstances.

A qualified adviser can help you:

• Understand how much equity you could release
• Explore all the options available to you
• Make an informed decision that supports your lifestyle and retirement goals

Get Started Today

Use our free equity release calculator to get an instant estimate of how much you could unlock from your home. Or, book a no-obligation consultation with one of our friendly experts.