Equity release versus downsizing

Permalink: Equity release versus downsizing
by Kay Murchie

Nigel Hare-Scott, managing director of home reversion specialist Home & Capital Advisers, believes that equity release can represent better value than downsizing. Equity release is a scheme designed to allow homeowners to release cash from the value of their property and downsizing is moving from the large family home to a smaller property.

Downsizing is sometimes unappealing to older people as it means giving up a much-loved family home and moving away from loved ones and friends.

Mr Hare-Scott said the thought of moving home at retirement to release money is not something older people are in favour of, particularly if they have lived there for many years.

He added that another choice of boosting income in retirement is equity release which provides a cash lump sum to facilitate retirement ambitions such as a regular holiday or a new car.

However, someone moving from a property worth £350,000 to one that costs £200,000 would raise £137.500 as charges such as estate agency, valuation and legal fees, stamp duty and moving costs would, on average, cost around £12,500.

Using the same example above, a home reversion equity release plan for someone age 65 would release a maximum of 43% of the total value of the same property, which works out at £150,500. The only fee that would have to be deducted from this figure is legal fees of approximately £450, leaving £150,050.

Those considering equity release schemes are advised to keep relatives informed before proceeding.