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What is The Catch With Equity Release? (The Pros & Cons in 2024)

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Is equity release a good idea?

Is Equity Release a good idea image with a lightbulb

Author Paul Murphy Updated November 2023

If you don’t want to downsize to raise cash from your home, is equity release a good idea?

If you’re a homeowner over 55 and need extra income or a cash lump sum, you could release some of the value of your home that has built over the years.

Repayments are voluntary and income checks are not carried out and can provide financial support through your later life and retirement years.

From repaying an existing mortgage or personal debt, a gift to help your family financially, home or garden improvements, or cover the costs of care in the home, there are many benefits of releasing equity, it can offer a great deal of options and is certainly worth exploring.

Later Life Finance explains how equity release schemes can help reduce the financial pressure in later life.

We look at the pros and cons to help you decide whether is equity release a good idea.

If you are exploring the idea and wondering who is the best company to speak to about equity release, Later Life Finance provide a complete start to finish broker service. 

Let’s get started!

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Short Summary

The pros and cons of equity release image with man weighing up all the options

We review whether equity release may be a good idea for your individual circumstances and cover the following topics:

  • What are the pros and cons of equity release?

  • Is there a catch with equity release?

  • is equity release worth it, is it a good idea?

  • Is now a good time for equity release?

  • Is equity release safe and worth it?

  • How much equity can I release from my home

  • Downsizing protection explained

What is equity release?

Equity release is a loan against your home which lets you access the equity in the form of cash.

There are no monthly repayments to make and the cash is tax free.

There are two main types of equity release:

Lifetime mortgages – a loan is taken out against your home and is only repaid once the last surviving homeowner dies or moves into long-term care. You continue to own your home with this option.

Home reversion plans – This involves selling part or all of your home in return for a cash lump sum. You can remain living there rent free until the last surviving homeowner dies or moves into long-term care.

For this reason, we will focus on an in depth overview of lifetime mortgage schemes in the article.  Later Life Finance have access to the best equity release companies in the UK for comparing all your options. 

The Equity Release Council, have stated over 93,000 UK homeowners released money from their home with equity release in 2022. We explore what’s important to consider and whether it’s a good idea or not.

Try our free equity release calculator for instant results.

Is equity release ever a good idea?

The answer to this questions is yes, so long as there is a real requirements and expert advice is sought.

Modern lifetime mortgages allow optional repayments to be made to maintain control of the compound interest and preserve more equity as an inheritance. 

Lifetime mortgages can also be used to reduce your inheritance tax bill as the money borrowed is deducted from your estate when you pass away.

In this comprehensive guide, we’ll delve into the ins and outs of the best lifetime mortgages – from understanding how equity release works and the different options available, to finding the best providers in 2023, to explaining the difference between lifetime mortgages and equity release.  

Is Equity Release Really Worth It?

We are frequently asked is equity release actually worth it? Whether it’s worthwhile or not depends on you and your requirements, and it’s important to consider all the alternatives when thinking about whether equity release is right for you. 

Later Life Finance limited are a specialist lifetime mortgage broker authorised and regulated by the financial conduct authority (FCA).

As experts in later life mortgages we review the world of the lifetime mortgage and the important points to consider when deciding whether it is right for you.  Access our free equity release cost calculator for more figures. 

Are Lifetime mortgages a Good Idea?

Lifetime mortgage schemes have become increasingly popular among homeowners aged 55 and over. They offer a way to access funds tied up in property without the burden of monthly repayments.

But before diving in, it’s crucial to understand how the mortgages work, their interest rates, and the potential impact on your financial future.

Let’s start by exploring the basics of the lifetime mortgage, the most common equity release product.

  • Lifetime mortgages allow homeowners over 55 to borrow against their property. With optional repayments the mortgage is settled when the homeowners pass away or go into long term care. 

  • Voluntary repayments mean compound interest can be avoided or reduced to help preserve more equity for your beneficiaries, or for downsizing and settling the mortgage and buying another home. 

  • No negative equity guarantee for Equity Release Council members ensures you will never owe more than your home’s sale proceeds; protecting you and your family. 

  • Possible to port (move) the lifetime mortgage when moving to a suitable property, or sell property and repay debt with sale proceeds (subject to exit fee’s)

  • Downsizing protection to repay without any exit fees if you move home and settle early

  • Access professional equity release advice with Later Life Finance.

    We help you determine if a lifetime mortgage suits your needs and review lump sum or drawdown options, voluntary repayments and exit fees. It’s crucial to seek independent financial advice on all your options.

What are the pros and cons of equity release?

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The pros of equity release

Like any financial scheme, equity release has its own pros and cons. Whether a lifetime mortgage is the best option for you depends on your specific circumstances and any future plans.

For example if moving home, certain lenders offer more flexibility and repaying the mortgage early.

We review the advantages of equity release and compare against the disadvantages for a balanced view.

  • Tax free money – the cash you release is free from tax and yours to use as you wish.

    However, if you have an existing mortgage in place, this needs to be repaid with the money you release from your home.

  • Optional monthly repayments – Compared with a typical mortgage this offers much more flexibility.

  • You still own your home – With a lifetime mortgage you continue to own your home. You can remain living in your home until the last surviving homeowner dies or goes into care.

  • FCA regulated – Modern equity release is safe and fully regulated by the Financial Conduct Authority (FCA) with industry codes of conduct overseen by the Equity Release Council (ERC).

  • No negative equity guarantee – plans provided by members of the Equity Release Council guarantee that you will never repay more than the value of your home.

  • Porting – You have the freedom to move home (port) as long as the new property is mortgageable

  • Drawdown facilities – you can choose to release the cash in a lump sum or as and when you need it with access to a reserve facility on a drawdown lifetime mortgage.

  • Voluntary repayments – plans provided by Equity Release Council members allow you to make voluntary repayments which can help reduce the overall cost of the loan.  

  • Inheritance guarantee – you can guarantee an inheritance by protecting a percentage of the property value for your beneficiaries.

The cons of equity release

  • Compound interest as you pay interest on the loan and on the interest already accrued, the amount you owe grows at a faster rate.

  • Impact on inheritance – The loan is repaid from the sale of your property and will reduce the inheritance you leave.

  • Early repayment charges – Equity release plans include penalties for repaying the loan early.

  • Affects Means Tested benefits – releasing equity could negatively impact on any means tested benefits

Modern lifetime mortgages offer greater flexibility, such as voluntary repayments, downsizing protection and the option to protect a percentage of your property value or make interest repayments to a percentage of the amount released without incurring fees

Access expert equity release advice with Later Life Finance.

What's the catch with equity release, is it safe?

image of person with savings researching Is equity release safe

Modern Equity release is safe. Providers and schemes of equity release loans are regulated by the Financial Conduct Authority (FCA) and overseen by the Equity Release Council (ERC). 

Strict regulation, rules and safeguards ensure homeowners are protected and you are guaranteed to never to owe more than the value of your home.

With a negative equity guarantee in place, you and your estate will be protected.

Here’s how the Equity Release Council’s guarantees protect you:

Equity Release Council safeguards

  • Interest rates must be either fixed or if variable, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the scheme

  • Homeowners must be able to stay in the property for life, or until you move into care

  • You have the right to move (port) to another property, as long as the property meets the lenders criteria

  • A ‘No negative equity’ guarantee which means in the unusual event of negative equity arising due to the equity release plan, you will never owe the provider more than the value of your home.

  • This safeguard protects you and your estate under these circumstances.

The Equity Release Council also provide strict rules and guidance which stipulate that you should only take out equity release once you’ve received professional financial advice and independent legal advice with a solicitor.

Access expert equity release advice with Later Life Finance.

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How much equity can i release from my home?

Man using an equity release calculator to calculate later life mortgages and finance

When considering how equity release works and how flexible it is for moving home, downsizing protection is an important feature which provides the option to move home and settle the mortgage without penalties.

This flexibility is important if you plan on releasing cash and downsizing in the future, and require a scheme without early repayment charges if you wish to repay the lifetime mortgage early. This provides a risk free solution for moving home which your equity release adviser will discuss with you when providing independent advice.

Downsizing Protection

When considering how equity release works and how flexible it is for moving home, downsizing protection is an important feature which provides the option to move home and settle the mortgage without penalties.

This flexibility is important if you plan on releasing cash and downsizing in the future, and require a scheme without early repayment charges if you wish to repay the lifetime mortgage early. This provides a risk free solution for moving home which your equity release adviser will discuss with you when providing independent advice.

Is now a good time for equity release?

Equity release is currently a popular option to consider as the costs of living increase, homeowners may benefit from a cash injection.

The best time to take equity release depends on your requirements and whether you need to raise money, or whether you can wait until you need the money.

If you feel ready to to discuss which equity release provider can offer you the best solution, we review plans from each lifetime mortgage provider to ensure we source the most suitable scheme.

Are there any risks with equity release?

The main risks with equity release are

  • Compound interest

  • Reduced inheritance for beneficiaries

  • Risk of less equity for care costs

  • Risk of impacting on means tested benefits

However these risks can be mitigated with expert advice and ensuring you fully understand all your options.

Summary

Equity release can be a good idea as long as you consider all your options with an expert. 

Weighing up the pros and cons and answering whether now is the best time for equity release for you will help you decide what’s best. 

Consider moving home and downsizing or using some of your savings first, and book a call with Later Life Finance to discuss all your options without any pressure or obligation to proceed. 

Get your free calculation

How Does Equity Release Work FAQS 2023

The minimum age for taking out an equity release lifetime mortgage is 55. However, as people are living longer, starting a lifetime mortgage earlier may result in higher costs, especially if you choose not to pay interest during the loan term.
Equity release may be a good idea for homeowners over 55 who would like to raise tax-free cash from their property. Equity release enables you to fund various needs, such as making improvements to your home, covering care expenses, assisting loved ones with a living inheritance, or settling outstanding debts.
The yearly borrowing amount in equity release typically ranges from 10% to 40%, depending on the specific plan. Most plans offer flexibility in interest payments, allowing you to choose between paying no interest, some interest, or all of the interest accrued. Additionally, you have the option to make payments above the interest charged, which can help reduce the overall capital owed and result in savings upon maturity of the plan
Equity release plans offer the opportunity to access a lump sum of cash or receive regular income. The "catch" is that the cash released will eventually need to be repaid upon your passing or when you move to long-term care. In the case of a Lifetime Mortgage, you will be responsible for repaying both the borrowed capital and the accumulated loan interest.
When it comes to equity release, the specific repayment amount is influenced by various factors, including the type of plan and how long it runs for. Compound interest plays a significant role in the total repayment, as it accumulates on the initial loan amount and any previously accrued interest. Unlike traditional loans, equity release plans usually don't require regular repayments. Instead, the outstanding loan, including the accumulated interest, is typically repaid when you pass away or move into long-term care, using the proceeds from selling your property. Consider the long-term implications of compound interest, and seek advice from our financial professionals to make an informed decision and access detailed projections.
Disadvantages of equity release involve reduced payouts in home reversion schemes, as companies typically offer less than the full market value for their share of your property. With lifetime mortgages, a drawback is the impact of compound interest, potentially resulting in reduced inheritance for your beneficiaries. However, this drawback can be mitigated by making voluntary repayments to the mortgage to reduce or eliminate the effect of compound interest.
Yes, it is possible to sell your house if you have equity release. Equity release products, including lifetime mortgages, offer the flexibility to be repaid or ported to another property when you sell your home. However, it's important to consider that some equity release plans may have early exit fees or penalties associated with repaying the loan before a certain period.
The main difference between equity release and remortgaging is that equity release does not involve fixed monthly repayments, whereas remortgaging does. This characteristic makes equity release a preferable option for older homeowners looking for flexibility in later life, where fixed monthly mortgage payments are less favourable.
Modern equity release is safe and regulated by the Financial Conduct Authority (FCA). Strict regulation, rules and safeguards ensure homeowners are protected and you are guaranteed to never to owe more than the value of your home.
Pros of equity release Tax free money – the cash you release is free from tax and yours to use as you wish. However, if you have an existing mortgage in place, this needs to be repaid with the money you release from your home. Optional monthly repayments – Compared with a typical mortgage this offers much more flexibility. You still own your home - With a lifetime mortgage you continue to own your home. You can remain living in your home until the last surviving homeowner dies or goes into care. FCA regulated – Modern equity release is safe and fully regulated by the Financial Conduct Authority (FCA) with industry codes of conduct overseen by the Equity Release Council (ERC). No negative equity guarantee – plans provided by members of the Equity Release Council guarantee that you will never repay more than the value of your home. Porting - You have the freedom to move home (port) as long as the new property is mortgageable Drawdown facilities – you can choose to release the cash in a lump sum or as and when you need it with access to a reserve facility on a drawdown lifetime mortgage. Voluntary repayments – plans provided by Equity Release Council members allow you to make voluntary repayments which can help reduce the overall cost of the loan.   Inheritance guarantee - you can guarantee an inheritance by protecting a percentage of the property value for your beneficiaries. Cons of equity release Compound interest as you pay interest on the loan and on the interest already accrued, the amount you owe grows at a faster rate. Impact on inheritance - The loan is repaid from the sale of your property and will reduce the inheritance you leave. Early repayment charges - Equity release plans include penalties for repaying the loan early. Affects Means Tested benefits – releasing equity could negatively impact on any means tested benefits Modern lifetime mortgages offer greater flexibility, such as voluntary repayments, downsizing protection and the option to protect a percentage of your property value or make interest repayments to a percentage of the amount released without incurring fees Access expert equity release advice with Later Life Finance.
According to the Money Saving Expert, "Releasing equity on your property needs to be done when you need the funds,” Martin Lewis said. “If you don't need the funds, don't do it.” Reviewing the alternative options including downsizing or using alternative funds is part of Later Life Finance's advice process to ensure you make the right decision for you.
The most common type of equity release is the lifetime mortgage. The interest charged is 'rolled up' and repaid when the property is sold. The plans also allow optional repayments to maintain control of the interest if you do not want the interest to accumulate. This gives you more control over your outgoings compared with a mainstream mortgage. The value of your home and your age determines how much money you can taken from your home with a lifetime mortgage. Most plans have an early repayment charge and some lenders offer downsizing protection for flexibility if you wish to move home and repay the mortgage early. The mortgage lenders allow you to port the plan to a new home. Your financial adviser will discuss any impact on state benefits. There are brokers and providers, also known as lenders. The best equity release companies are members of the equity release council and regulated by the Financial Conduct Authority.
A lifetime mortgage is the most common method to release equity, as you retain homeownership (unlike a home reversion plan where you sell a proportion of the property). These consist of a lump sum or drawdown plan, which can help reduce the impact of interest charged on the loan. Depending on whether you require the maximum amount of equity release or not determines which type of plan is suitable. The mortgage is repaid when the last survivor passes away or goes into long term care. There is no fixed term based on your age.
Equity release schemes offer several features. With a lifetime mortgage the interest rate is typically fixed for life and a lump sum or drawdown reserve facility can be arranged. Monthly payments are optional and plans are not underwritten on affordability, making the equity release route an attractive option for repaying an existing mortgage and debts as long as the implications of securing previously unsecured lending against your home is understood.
Later life mortgages are for mortgages designed for the over 50s. Unlike a traditional mortgage, later life mortgages have a minimum youngest age of 50 and either have no fixed payments, or they can use retirement income as part of the application process to incorporate fixed monthly interest payments.
If you are considering whether to release money from your home accessing expert advice to understand each product available is important. A financial adviser who specialises in equity release plans is called an equity release adviser, or specialist who is a later life finance mortgage expert. You can access advice through Later Life Finance without any pressure or upfront costs. Contact 0800 2465228 to talk with a friendly expert who can explain all your options.
With equity release the market value of your property is determined by a chartered surveyor. The lender will arrange this if you decide to apply. The valuation process normally involves a visit to your home, and is part of the application process. This enables the value of your property to be confirmed and the amount of equity available to be calculated. If the valuation figure is higher or lower than expected this can affect the amount of equity available. The property value must reflect the market in your area and similar sized property values. A common misconception is valuers reduce the figure when applying to release equity, however this is not the case as the valuer must use comparable evidence, which means sold properties of a similar size. You are not selling your home with a lifetime mortgage; any future growth in the valuation figure will still benefit your home.  When considering how much equity you can release from your home, your property and your age determine the figures.
How much equity you can release is based on your age and property value, the lenders criteria and any other factors to consider such as property type or location can also influence the value of your home. The percentage of borrowing starts at around 20% of the value of your home at a youngest age of 55, and increases by 1% each year. The older you are the greater the level of borrowing available. Factors such as property type and health are also used as part of the overall figure available with to determine how much equity you can release.  Any outstanding mortgage must be repaid from any equity released.
Releasing equity from your home can be beneficial if you want to utilise the money tied up in your home. This can be a good idea if you have a mortgage to repay, or are struggling with debt, or if you want to boost your finances or gift funds to family members as an early inheritance, for example. Using your equity to improve or adapt your home in later life is also popular, if downsizing isn't preferable and you plan to stay in your home for the foreseeable future. Your adviser can guide you on suitability, alternatives and explain all the pros and cons. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Due to compound interest, the value of your estate will reduce, whilst the amount you can pass on in inheritance via your estate will decrease. Entitlement to means tested state benefits may also be affected, it's important to discuss this with your adviser and check what you are entitled to. Early repayment charges can apply for repaying the plans before you pass away, so it's important to consider your longer term plans which your equity release adviser will discuss with you. Your adviser can guide you on suitability, alternatives and explain all the pros and cons. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
The main alternative to equity release is downsizing, or if any savings or assets can be used instead this is also important to consider when looking at all your options. Other alternatives to equity release are retirement interest only mortgages, conventional mortgages, and checking whether any means tested benefits or grants may be available to you. Your adviser can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Most equity release companies have a minimum age of 55. Some companies require a minimum age of 60. The best age to take equity release is based on your individual circumstances and when the time is right for you, considering all the options and alternatives. Your adviser can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Martin Lewis explains when looking for a lifetime mortgage solution, you should always try secure the most competitive interest rate, which is something Later Life Finance can guarantee as a whole of market, independent broker. Martin Lewis recommends anyone with an existing lifetime mortgage should check if they are eligible for a more competitive interest rate, and how much equity can you can release.
An equity release broker can provide advice and access to the range of plans available in the marketplace. Later Life Finance provide independent, expert advice on all your equity release options. Our advisers can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation. Get in touch on 0800 2465228

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