Downsizing releases your cash and makes sense if the children have moved out. But there are products that lend against the value of your house while you stay in it.
£801 billion. That is the value of the homes of Britain's army of over-65s – after all mortgage debt has been taken into account – according to the equity release provider Key Retirement Solutions.
Reduce this age to 50-plus and the almost unimaginable trillion pound mark is likely to have been breached.
That's a trillion as in a '1' followed by 12 noughts. An Englishman's home isn't just his castle, it's almost all his wealth tied up in bricks and mortar.
This is a lot of money in anyone's book and could be used to provide a comfortable retirement – provided, of course, you remember that you need somewhere to live. But how can you get this money out of property and into your retirement income pot?
There are two main ways to convert a home into income or plain old cash.
First, there is downsizing. This is simply selling your home, buying somewhere cheaper (not necessarily smaller as you may move to an area where prices are lower) and pocketing the remaining cash.
The second choice is through an equity release product, which allows you to remain living in your home on the understanding that when you die or move into residential long-term care the equity release provider will get its money back, with interest, usually through the sale of the family home.
Each of these two methods have their upsides and their downsides, some of which aren't at first glance obvious.
Whichever route you take involves compromises and if you don't want that you should find other ways to fund your old age. Here is the High50 guide to the pros and cons of each option.
The upsides of downsizing
You keep control. Although, you are selling the family home, you decide where you next live. Your old home may have been fine in your thirties and forties when the kids were growing up and the house seemed stuffed to the gills. But when they have been packed off you may have too much space.
The classic downsize is to move from a four or five-bedroom detached property in suburbia to a smaller property somewhere where you really want to be in order to live the life you want right now – by the sea, near a national park or just around the corner from the grandkids (for all that babysitting). Downsizing is as much about life choice as it is the cash.
Lower heating and maintenance costs. Winter is upon us and with it the energy bills soar. A big house, particularly if it's older and less energy efficient, can be a huge drain on the household budget. Downsizing can mean that you move somewhere more energy efficient, and therefore cheaper to run and maintain.
Calculate your pension income options
You don't have to downsize; instead, just 'downprice'. Britain's disjointed property market with a huge north-south property price divide means that downsizing doesn't have to involve moving somewhere smaller at all. In fact, it is possible to sell a two-bedroom flat in a fashionable part of the capital and buy a large detached house in the north of England, Wales or even some parts of the South-East, yet still release some cash.
The downsides of downsizing
The transaction costs. Selling up and downsizing, although it may release a substantial sum of money, can be a high-cost option. First there are estate agency and legal fees to pay on sale, and the property that's being downsized too will be subject to legal fees and stamp duty. As a result, downsizing can cost tens of thousands of pounds, which can be a sizeable chunk of the capital realised from the transaction. All this needs to be factored into your final sums.
Once it's done it's done. The costs of downsizing are considerable and the amount of time the money released may have to last you much longer than you think. Life expectancy is heading towards 90, which means that retirement can last for a quarter of a century or more. If you want to downsize you would be best to assess carefully how much money you will need and, crucially, what will you do with the equity released. Ideally, you should look to get some investment return or interest pay-out from the money released through downsizing.
The upsides of equity release
It's simple: you get to stay in your home. There are numerous equity release providers who will loan money – and yes, it is a loan not an outright gift – in return for a proportion of the property. This proportion is claimed once you have died, choose to sell or enter long-term care. All the time you get to stay in your home, able to still have it as a centre of family life.
Also, you can choose to only sign over to a provider a proportion of your property, say 30 per cent. This may be able to be repaid at a later date from your estate. So it's conceivable that the family home could be passed on intact.
Equity release can be flexible. Instead of taking all the money available through equity release it is possible to drawdown sums when they are needed. This gives equity release the aspect of a savings account. However, each time money is accessed the total value of the equity release loan increases.
Calculate your pension income options
The downsides of equity release
Staying in the family home may not suit you. The family home has lots of happy memories in it, but can also be a financial and physical albatross.
Financial, because it maybe too big to heat and maintain on a pension; physical, as a house with lots of stairs and not easily adaptable if you have mobility challenges may not be the best place for you later in life.
Interest charges can mount up. The reputation of equity release has improved leaps and bounds since the 1980s and 1990s, when products were sold that frankly were a rank bad deal. Some people found that they lost a large proportion of their home for the sake of a loan that had been only a few tens of thousands of pounds in size.
These days, the products on offer are a lot more transparent and fair. However, equity release is still essentially a loan and interest is charged; the longer the time period taken to repay the loan – through the sale of the property – the more interest accrues.
Read more on High50:
How to supercharge your finances after you've paid off your mortgage
Let-to-buy mortgages and other ways to release your equity
Ten ways to avoid inheritance tax (legally)