Equity Release or Downsizing: Which is Best?

Finding enough money to see you through your retirement can be a real challenge. Even if you’ve diligently paid into a pension scheme throughout your working life, by the time you come to draw on it you may realise it isn’t worth as much as you thought. Many people have found themselves in this situation due to poor returns on their pension and major changes to final salary scheme pensions too.

The one thing you can usually count on as having appreciated in value over your lifetime is your home. Furthermore by the time you retire you will probably have paid off your mortgage in full. It is no major surprise then to realise many people retire in a property-rich, cash-poor situation.

In cases where additional income is needed to make ends meet, this prompts the question posed in the title. Do you release equity from your property with a lifetime mortgage that won’t need to be repaid until you die? Or do you downsize, moving somewhere smaller and cheaper and freeing up additional cash in that way instead?

There is no right answer here. It depends on many different factors – and not just financial ones either. For example some people may live close to their family and friends. They may not be able to downsize unless they move further afield into a different area. In other cases they may already live in a modest property, whereupon downsizing would not be a practical option. Still others are emotionally attached to their property. This is understandable too – it may be the place where they raised their children and had their kids and grandchildren round for Sunday dinner every week.

In this situation it is easy to see why equity release products are becoming more popular. They offer the chance to stay exactly where you are without having to up sticks and move somewhere you are unfamiliar with. They offer you the chance to stay in your own home rather than having to find somewhere else you would feel just as passionate about.

Some people would be happy to move, particularly if they are struggling to manage in a large house. In this case downsizing to a bungalow in the same area – perhaps even in the same road – could be a practical option. As we can see, it makes sense to sift through the pros and cons so you can assess which option would be best in your case. Either route frees up cash, but it is important to know why you are choosing a particular route and how it might affect your future.

Retiring is a big step and few people would want to move at the same time, starting afresh in a new property and perhaps a new area as well. At least with equity release products on the market it is heartening to know there is
an alternative solution for those who couldn’t imagine ever leaving their home behind for somewhere new.