Is equity release or downsizing better for releasing money from my home?

Full answer

Both options unlock the wealth tied up in your home, but they work very differently. Downsizing means selling your current home and buying a smaller, cheaper one (or renting), then keeping the difference. It is generally the cheaper route because there is no ongoing interest, you fully own the released cash, and your remaining estate is larger. Costs are one-off: estate agent fees, conveyancing, removals and Stamp Duty Land Tax on the new purchase (SDLT bands vary - check the stamp-duty calculator or gov.uk, and note Scotland uses LBTT and Wales uses LTT). The downside is the upheaval and emotional cost of leaving a long-term home and area. Equity release (typically a lifetime mortgage) lets you borrow against your home and stay living in it, with no monthly payments required - the interest is added to the loan and rolls up. Because interest compounds, the debt can grow substantially over time and significantly reduce what is left for your beneficiaries. Reputable plans carry a no-negative-equity guarantee, so you will never owe more than the home's value. Worked illustration of compounding: a loan that rolls up will roughly double over the years it takes for the interest rate to compound to 100%, so a GBP 80,000 release could become GBP 160,000 of debt before any repayment - model this with the compound-interest calculator. Inheritance Tax also matters: for 2026/27 the nil-rate band is GBP 325,000 plus a GBP 175,000 residence nil-rate band, and reducing your estate can affect IHT exposure. Equity release is FCA-regulated and requires specialist advice. Decide based on whether remaining in your home outweighs the higher long-term cost and smaller inheritance.

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