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Downsize or equity release – which is best for me?

Simon Stanney - Equity release director

Simon Stanney

Equity Release Director

Last updated 10th March 2020

5 min read

If you have equity tied up in your home, you could unlock some of it through equity release or by downsizing. Here we briefly compare the two options.

Retirement options

When people retire, they tend to face a loss in income. This can mean a drop in the standard of life they’re used to. As a result, people are looking to their property wealth to support them financially in later years.

There are several options available and it’s important to consider the financial, practical and emotional implications.

There are two main ways to convert some of the value of your home into cash:

Downsizing

Selling your home in order to buy a cheaper property. It may be smaller or in a lower priced area. Once you’ve sold, and all costs have been paid, you keep the money left over.

Equity release

A financial arrangement that can provide a tax-free lump sum, a regular income or both, while still living in the comfort of your current home. The equity release provider is repaid when your home is sold. This is normally when you die or move out permanently into long-term care.

Downsizing

Benefits

  • Selling up and moving to a cheaper property is quite straightforward from a financial point of view. You sell your house at today’s market value and buy a cheaper one.
  • Once all the costs of moving are settled, you keep the money left over to help fund your lifestyle and needs.
  • Your new property will be 100% owned by you and when you're gone, it can be left to your loved ones as an inheritance.
  • A smaller or newer property could be more economical to run, with lower energy bills and lower maintenance costs.
  • Moving to a more practical property, like a bungalow or flat, could make sense to prepare for the future when you might be less mobile.
  • You may want to move to be nearer family or find it refreshing to start a new phase of life in a different area or in a totally different style of property.

Things to be aware of

  • Expensive moving costs - As well as the purchase price of your new home, estate agent fees, legal fees, removals and possibly stamp duty, will need to be factored in to the numbers.
  • Home improvement costs - You may also have to spend money on improving your new home to make it how you would like it.
  • The emotional cost - If you've lived in your home for many years, the emotional upheaval of selling up may be hard to contemplate, especially if it has been the family home. The hassle and stress of a move may also feel like too much of an ordeal.
  • Less support - Moving could be an opportunity to start afresh, however for some people it may mean leaving behind the support of family and friends currently on your doorstep, which can become even more important as you get older.

Downsizing

  • Selling up and moving to a cheaper property is quite straightforward from a financial point of view. You sell your house at today’s market value and buy a cheaper one.
  • Once all the costs of moving are settled, you keep the money left over to help fund your lifestyle and needs.
  • Your new property will be 100% owned by you and when you're gone, it can be left to your loved ones as an inheritance.
  • A smaller or newer property could be more economical to run, with lower energy bills and lower maintenance costs.
  • Moving to a more practical property, like a bungalow or flat, could make sense to prepare for the future when you might be less mobile.
  • You may want to move to be nearer family or find it refreshing to start a new phase of life in a different area or in a totally different style of property.
  • Expensive moving costs - As well as the purchase price of your new home, estate agent fees, legal fees, removals and possibly stamp duty, will need to be factored in to the numbers.
  • Home improvement costs - You may also have to spend money on improving your new home to make it how you would like it.
  • The emotional cost - If you've lived in your home for many years, the emotional upheaval of selling up may be hard to contemplate, especially if it has been the family home. The hassle and stress of a move may also feel like too much of an ordeal.
  • Less support - Moving could be an opportunity to start afresh, however for some people it may mean leaving behind the support of family and friends currently on your doorstep, which can become even more important as you get older.

Equity release

Benefits

  • No need to move - Equity release allows you to stay in your home and access the equity in your property, which can be a great option if you don’t want to move house. No monthly repayments - You can release some of the value tied up in your property without having to make monthly repayments, however some plans offer this option.
  • Live comfortably - The cash you receive is tax free and you can spend the money however you like. You could take it as a one off payment or use it as a regular income boost to help live more comfortably.
  • Flexibility - Some lifetime mortgages offer flexible options to suit your circumstances such as a drawdown facility. This lets you take the money out of your home when you need it, rather than a lump sum all in one go.
  • No negative equity - There is a no negative equity guarantee with products offered by Equity Release Council members. This means you cannot leave your family with any debt as you will never need to pay back more than the value of your home.
  • You can still move house - It also gives you the freedom to transfer your scheme to another property as long as it meets the lender’s terms and condition.

Things to be aware of

  • Reduces inheritance - An equity release scheme is usually repaid from the proceeds of the sale of your home, so you can’t pass on the property itself as an inheritance. And even if you only release a small amount of the equity in your home, this will still reduce how much your estate is worth.
  • How much you can release - You can’t access 100% of the equity in your home. How much you can get will depend on the value of your property, your age and your state of health among other things.
  • House prices - With a home reversion plan, you sell all or some of your home to the plan provider at a discounted price and neither you, nor your family, will benefit from any future rises in house prices on the portion you sold.
  • Interest - Alternatively, with a lifetime mortgage, interest can mount up quickly, so the longer you have the loan, the more will need to be repaid when the property is finally sold.
  • Costs - As with any financial product, there are costs involved in arranging an equity release plan, such as set up fees, legal costs and fees for the required financial advice. These costs will ultimately depend on the amount released and the type of plan you choose.

Equity release

  • No need to move - Equity release allows you to stay in your home and access the equity in your property, which can be a great option if you don’t want to move house. No monthly repayments - You can release some of the value tied up in your property without having to make monthly repayments, however some plans offer this option.
  • Live comfortably - The cash you receive is tax free and you can spend the money however you like. You could take it as a one off payment or use it as a regular income boost to help live more comfortably.
  • Flexibility - Some lifetime mortgages offer flexible options to suit your circumstances such as a drawdown facility. This lets you take the money out of your home when you need it, rather than a lump sum all in one go.
  • No negative equity - There is a no negative equity guarantee with products offered by Equity Release Council members. This means you cannot leave your family with any debt as you will never need to pay back more than the value of your home.
  • You can still move house - It also gives you the freedom to transfer your scheme to another property as long as it meets the lender’s terms and condition.
  • Reduces inheritance - An equity release scheme is usually repaid from the proceeds of the sale of your home, so you can’t pass on the property itself as an inheritance. And even if you only release a small amount of the equity in your home, this will still reduce how much your estate is worth.
  • How much you can release - You can’t access 100% of the equity in your home. How much you can get will depend on the value of your property, your age and your state of health among other things.
  • House prices - With a home reversion plan, you sell all or some of your home to the plan provider at a discounted price and neither you, nor your family, will benefit from any future rises in house prices on the portion you sold.
  • Interest - Alternatively, with a lifetime mortgage, interest can mount up quickly, so the longer you have the loan, the more will need to be repaid when the property is finally sold.
  • Costs - As with any financial product, there are costs involved in arranging an equity release plan, such as set up fees, legal costs and fees for the required financial advice. These costs will ultimately depend on the amount released and the type of plan you choose.

Always seek advice

Downsizing or using equity release to access the cash tied up in your home is a big decision. It will need careful consideration and it will likely have an impact on your family so it’s important to include them in your plans too.

As with any major financial decision, before doing anything you must speak to a qualified specialist who will take you through all the options available to you in detail.If you’d like to find out more, we have a useful equity release guide explaining how it works and the different plans available.

Here's the information that you need to know about who we are and the other companies that we work with in order to provide our products and services.

Who are SunLife and who provides the SunLife Guaranteed Over 50 Plans?

SunLife Limited distributes financial products and services , registered office: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG, United Kingdom (registered in England and Wales, no. 05460862). SunLife Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (registration no. 769427).

Phoenix Life Limited trades as SunLife and is the provider of the SunLife Guaranteed Over 50 Plan life insurance policies. Phoenix Life Limited’s registered office is at 1 Wythall Green Way, Wythall, Birmingham, B47 6WG, United Kingdom (registered in England and Wales, no. 1016269).

Who provides the Funeral Benefit Option?

If you choose to add Funeral Benefit Option to your Guaranteed Over 50 Plan, Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals is not authorised or regulated for this activity by either the Financial Conduct Authority or the Prudential Regulation Authority. Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

The life insurance policy that pays for your funeral will be provided by Phoenix Life Limited, trading as SunLife.

Who provides SunLife Pet Insurance

SunLife Pet Insurance is arranged and administered by BDML Connect Limited. BDML Connect Limited is authorised and regulated by the Financial Conduct Authority (No. 309140). Registered in England and Wales Number 02785540. Registered Office: 45 Westerham Road, Bessels Green, Sevenoaks, Kent, TN13 2QB.

Who provides SunLife Home Insurance

SunLife Home Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.

Who provides SunLife Car Insurance

SunLife Car Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.