Mortgage equity release - pros and cons

Equity release isn't something to be feared or embraced, it's a financial planning tool. For some homeowners it can provide valuable flexibility in later life, whether that's improving retirement income, funding home improvements or helping family members onto the property ladder without having to move home.

For some people it may form part of retirement planning, but it shouldn't replace retirement planning. The trade-off is that you're reducing the value of your estate and interest can build up over time, so it should never be entered into lightly. The right question isn't whether equity release is good or bad, it's whether it's the most suitable solution for your circumstances and long-term plans.

Equity release does one thing people never quite picture: it doubles. At an average rate of 7.24% (Equity Release Council, mid-2025), a debt left to roll up doubles roughly every ten years. Not the interest. The whole debt.

The average lump sum in the latest figures was about £123,000 (Equity Release Council, Q4 2025). Take that at 70, make no repayments, and by 85 you owe roughly £351,000, without borrowing another penny. The debt has almost tripled. A home rising at a typical 2% a year has grown by about a third. That gap is the inheritance.

And it rests on one number checked once. A surveyor values the house, and a slice of that figure is your ceiling for life. No second opinion, no competing offer, no real buyer to test it. Sell a home properly and you get several agents' views, then the market's verdict. Here you get one person's, and if it comes in low you never find out.

Get that valuation checked by someone with nothing to sell you.

Equity Release (Lifetime Mortgages) certainly have an evergrowing role within later-life financial planning. With traditional mortgage borrowing difficult in older years, ER's can help those with significant home value, but not cash savings, to afford those home improvements, repay outstanding finance and mortgages that have come to their final end date. Increasingly they are used to help children with a deposit to buy their first homes, as well as a means of reducing the potential inheritance tax liabilty too, if gifted to family early enough. With high rates, allowing the interest to roll up can quickly eat into your equity, leaving less for your heirs and children to inherit, as rates are locked in for at least 10 years, if not their lifetime, and the amount you can borrow really does depend on your age as much as the equity in your home.

Equity release can be a sensible tool for older homeowners who are asset-rich but cash-poor, particularly where it helps fund essential living costs, clear expensive debt, adapt a home, or support a more comfortable retirement without having to move. But it is not free money. Interest rolls up, the debt can grow quickly, and it will usually reduce what is left for family, so anyone focused on legacy planning needs to go in with eyes wide open. It should be considered as part of wider pension planning, not as a last-minute sticking plaster. For some retirees, their home is their biggest unused financial asset, but unlocking it should sit alongside pensions, savings, tax planning and benefit entitlement, with proper regulated advice and family conversations where appropriate.

Equity release can be life-changing or quietly catastrophic, depending almost entirely on whether anyone explained the small print.

The right candidate is asset-rich, cash-poor, with a clear purpose and limited alternatives. Funding home adaptations, clearing a mortgage before retirement or helping a child onto the ladder are all reasonable uses. The wrong candidate is anyone who has not been shown what compound interest does to a lifetime mortgage over twenty years. Borrowing £50,000 with no monthly repayments can more than triple before the property is sold. Families tend to discover this while grieving, which is not ideal timing.

As part of pension planning, equity release belongs in the last resort category. Exhaust pensions, ISAs and other assets first. The decision is largely irreversible, the products are complex, and the sales process is not always as independent as it presents itself. Get proper advice before signing anything.

The older the borrower, the more that can be released. At present you could release upto 54% of the properties value for the oldest of borrowers. People who are usually shunned by the high street, can access a lump sum or perhaps a regular amount to boost incomes.
A borrower having difficulty evidencing income to fit a lenders criteria might use it or those on a low income, as lenders generally do not need to have an income to support applications. One favourite is that regular payments are not required, as interest can instead be rolled up in with the loan and paid when the borrower dies or moves into care. That said, many do like to pay as they go, preserving the equity for those they want to leave their estates to after they've gone.
An added side effect is that it could reduce Inheritance Tax, so careful planning would be advisable.
The money released is treated as a capital withdrawal and so is not liable to income tax and can prove a good boost to someone’s retirement.

As a qualified Equity Release advisor, I openly profess it is not a product that is suitable for everyone. However, it can be a perfectly good option for those who are cash poor but asset rich. Gifting to younger generations if the need is greater now, renovating the home, supplementing pension income, paying towards care or enjoying a lump sum and spending the money on yourselves are all viable uses for Equity Release.
The loan can be drawn down in small increments, and the interest can be serviced reducing the compounding effects if a large lump sum were to be borrowed.
It is certainly a product I can feel will grow in prominence with changes to IHT and with people living longer and maybe needing to use the equity built up in their homes over time to live on

Equity release is not good or bad; it is expensive money that can solve an expensive problem. It can be appropriate for someone who is property-rich but cash-poor, needs to clear an interest-only mortgage, fund home adaptations or create a more sustainable retirement without moving.

The danger is treating the house like a cash machine. Interest can compound for years, reducing the estate significantly, and releasing cash can affect means-tested benefits. Early repayment charges, future moving plans and the impact on family must also be understood.

Housing wealth can form part of retirement planning, but it should not replace pension planning. I would first compare downsizing, existing savings, pension income, family support and retirement-interest-only borrowing. Where equity release is suitable, taking smaller amounts gradually and making voluntary repayments can reduce the long-term cost. The decision must work for the client’s future life, not just solve today’s cash shortage.