UNTIL recently, you may well have been relying on your home to help fund your retirement.

However, as house prices have fallen by more than 6% in England and Wales in the past year, according to Hometrack, you may be losing your financial faith in bricks and mortar.

Over the next four pages We look at two possible ways to release the cash tied up in your home. – and help you choose the best option for your situation.

DOWNSIZING

When it comes to releasing the wealth in your home, the most popular option in our survey was downsizing - but selling your home and moving to a cheaper one is a popular option, with 14% of homeowners thinking about doing this.

Although this means moving out of your current home, downsizing can be one of the best ways to release equity, as you still own 100 per cent of your new home's value and there is no debt to pay back, as there is with an equity release scheme.

While house prices have fallen a lot, by as much as 7.3% in some parts of the UK over the past year, if you choose where you move to carefully, you could still end up with plenty of cash left over.

Average house prices can vary significantly on a local level. You should do your own research into house prices in the areas you are considering moving to by talking to local estate agents or using property websites such as www.rightmove.co.uk and www.primelocation.com.

MOVING COSTS

When you downsize, you will have to pay a number of fees, so you should take these into account before deciding whether it's worthwhile.

If you downsized from an average semidetached house in Greater London to a terraced house in East Anglia.You could incur the following costs:

Estate agent's fees
These can be up to 1.75 per cent of your home's value. (with a sole agent). This would come to £4,170 if you sold a semi with a single agent in London for the current average price of £278,000 (Hometrack, September 2008). You'll also need a home information pack, which must now be compiled for every home put on the market, at around £225, although the cost is sometimes included in the agent's fee.

Legal fees
You'll also have to pay legal fees, which These could cost around £975 (including bank and Land Registry fees) if you moved to a terraced house in East Anglia at the average price of £102,000.

Survey and removal fees
You'll need to pay for a Homebuyer survey at £300 and removal fees of around £550. In this case there would be no stamp duty to pay, as it doesn't apply to purchases of up to £175,000 (until September 3, 2009).

This brings the cost of moving from a semi in London to a terraced house in East Anglia to £6,220,which leaves more than £169,000 in equity. You could invest this money in a number of instant-access savings accounts (but never invest more than £50,000 with one banking institution as you won't get compensation for the difference should the bank go bust).If you got interest of 6.5% on this money, you'd earn £8,788 in a year after basic-rate tax. However, always get independent financial advice on how to invest a large sum of money.
Think carefully as there may be times when downsizing just isn't worthwhile (see *Is it worth it?' above)

MARKET SLOWDOWN

It's not just the money involved that you need to consider. The housing market has slowed considerably in the past year,which means that It could take a long time to sell your home and you may have to accept a lot less than your asking price.

In September 2007, the average time it took to sell a property in England and Wales, according to Hometrack, was 6.9 weeks. By this September it had risen to 11.5 weeks.

GAZUNDERING

In September last year, movers were selling their homes for an average of almost 95% of their asking price. This September it was just 90%.

Gazundering, where a buyer has an offer accepted on a property but then lowers it before contracts are exchanged, is also likely to be more common in current market conditions.

If this happens to you, you may feel forced to accept the lower offer for fear of losing your buyer. Unfortunately, there is little you can do about gazundering, but you can minimise the chances of it happening by trying to push the exchange of contracts through as quickly as possible and by asking for a realistic sale price in the first place.

Gazundering can't happen under the Scottish home buying system.

NOW'S THE TIME

The potential increase in gazundering is not surprising when you consider the fall in the number of people moving.

The National Association of Estate Agents (NAEA) recorded an average of 326 home hunters per UK estate agent in August 2007 but at the same time this year there were just 207 – over a third less.

NAEA chief executive Peter Bolton King says: *A lot of people are waiting to see what will happen in the market before they buy or sell but this varies around the country.'

So, depending on where you live, Now may be a good time to downsize if you are willing to move to a cheaper area, but choose your location carefully and be prepared to be patient.

IS IT WORTH IT?

It's crucial to do your maths very carefully before you decide whether downsizing is worthwhile for you.

If you are buying and selling in the same region of the UK, downsizing may not supply you with enough equity. as the figure, right, shows.

The real benefits of downsizing come when you are moving to a property in another part of the UK, where like-for-like house prices are significantly lower.

EQUITY RELEASE

If you're considering a lifetime mortgage or home reversion scheme, you should think carefully. 

In our survey, 5% of you said you are considering taking out an equity release scheme to release cash tied up in your home.

However, you should be wary of these and take advice from an independent financial adviser with a qualification in equity release, and independent legal advice, before going ahead. Visit www.which.co.uk/advice/financial-advisers for more on choosing a suitable adviser.

There are two types of equity release scheme – a lifetime mortgage and a home reversion scheme. They are usually available to people over 55, although different limits apply to different schemes.

LIFETIME MORTGAGES

With this type of scheme, you borrow around 20 to 50 per cent of your property's value, depending on the provider and your age, at a fixed rate of interest –possibly of around six or seven per cent.

You pay nothing back until you die, move permanently into long-term care, or the house is sold. However, your debt can quickly mount up, potentially leaving you with insufficient equity if you decide you need to move to a different property later or need to use the equity for other things.

This is even more of a problem in a market where house prices are falling, such as the current one.

HOME REVERSION SCHEMES

With this type of scheme you sell a proportion of your home to the provider for less than the market value. The provider takes that proportion of the property's value when you die, move into long-term care or sell.

Falling house prices put you at greater risk of ending up with insufficient equity if you need to move.

A LAST RESORT

Taking out an equity release scheme can limit your options later on, so the younger you are when you take one out, the riskier it is. It may also reduce any state benefits you receive and could increase the income tax you pay.

If you do take one out, make sure it allows you to move into a cheaper property or retirement or sheltered housing later, as not all do. Try to find one with either no early repayment charges or low charges that apply only in the first few years.

If you're taking out a lifetime mortgage, you should consider a drawdown scheme, which allows you to access the money as and when you need it, reducing the interest you pay overall. It's usually best to take out one with a fixed rate of interest.

Also, make sure your scheme provider is a member of the equity release industry body, Safe Home Income Plans (Ship). All members must follow a code of practice and offer a 'no negative equity' guarantee, which means you will never owe more than the value of your home.

DOWNSIZING WORKED FOR US

Paul Booth, 65, and his wife, Marjorie, downsized in 2002 after their three children left home and their house became too big for them.

They sold their detached five-bedroom house in the town of Wellington, Shropshire, for £170,000 and moved to a three-bedroom terraced house in Lawley village three miles away for £105,000, leaving them with £60,000 after moving costs.

They invested some of the money in Isas and shares, gave some of it to their children and took several cruise holidays.

It took around 18 months for Paul and Marjorie to sell their house and buy another one, but they are really happy with their move.

As it is a smaller house with a landscaped garden, it is less work than their old one, so they now have more time, as well as cash.

Paul said: “It was a bit of a wrench leaving our old house, as we had lived there for 21 years, but that doesn't outweigh the benefits of downsizing.”

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