Alternatives to Equity Release Mortgages

Rent out a spare room

If you have a spare room, renting this out can provide extra retirement income. Average rental income is around £342 per month according to Spareroom.co.uk [2]. Of course, this varies hugely based on location.

As a resident landlord you can earn up to £7,500 tax-free rental income per year from lodgers before declaring it to HMRC [3]. You retain full home ownership and can end lodging agreements if it doesn’t work out.

The company The HomeShare People [4] pairs homeowners with vetted professionals who pay affordable rent in return for help around the home, providing companionship and security.

Be aware of risks like problem lodgers, wear and tear, and sharing your living space. Safeguards like references and inventories reduce these.

Sell and leaseback your property

With a sale-and-leaseback arrangement, you sell all or part of your home to an investor but continue living there as a tenant. This unlocks a lump sum from the sale value while allowing you to remain in the property.

The investor becomes the landlord and grants you a tenancy agreement, typically from 2-10 years [5]. At the end of the lease, you vacate the property unless terms are renegotiated.

Advantages include:

• Tax-free cash windfall
• No monthly payments during the lease
• Lease may cover home repairs

But you lose home ownership and rights like making alterations. Rent costs after the lease ends are uncertain too. Get qualified financial and legal advice beforehand. [6]

Take out a standard mortgage

If you can meet affordability criteria, taking out a normal mortgage lets you borrow against your home but retain ownership. This could be an option if you only need to borrow a relatively small amount.

Regulated mortgage advisers can explain mainstream lending into retirement. Expect thorough affordability checks on income vs outgoings. Interest rates may be higher for borrowers over 55 or with small loan amounts. [7]

Mortgage borrowing reduces equity available to borrow against in future or leave as inheritance. And without fixed repayment terms, you may risk needing to sell if unable to keep up repayments.

Explore state benefits

Certain benefits like Pension Credit or Attendance Allowance could provide income if eligible. This reduces the need to access housing equity.

Pension Credit tops up weekly income to a minimum level. The savings credit element rewards those who’ve built up retirement provisions. [8]

Attendance Allowance helps over-65s with personal care because of physical or mental disability. It’s tax-free and paid regardless of income. [9]

Check benefit entitlement calculators to see what support you may qualify for. Every bit helps reduce financial pressures in retirement.

Each equity release alternative has pros and cons to weigh up. Take impartial advice and compare all options before deciding what works best for your situation.