In this article, we will explore the pros and cons of the equity release and how it will affect you in your retirement years.

The Equity Release market is booming with over £1 billion being released every year. The government has also introduced some tax relief schemes for those who take out an equity release to help them pay off their mortgage quicker.

However, there are some downsides to taking out an equity release that you need to be aware of before signing up.

Here in this blog, we will discuss the pros and cons of equity release mortgages. We will answer the most asked questions such as what are the pros and cons of equity release, is equity release a good idea, what are the advantages and disadvantages of lifetime mortgages etc.

Equity release offers a great way of unlocking some of the cash value otherwise tied up in the home you own. Many people have turned to such loans as a way of funding renovations to their home, the purchase of a new car, or perhaps the holiday of a lifetime.

Like any other financial product, of course, there are things you need to carefully weigh up – before you can answer the question is equity release a good idea for you, you will need to consider the pros and cons.

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What is equity release?

The equity you own in your home is equivalent to its current market value, less the outstanding mortgage balance. Quite simply, therefore, it’s what you would pocket if you sold your home for cash right now. By the same token, if you are mortgage-free or have already repaid it in full, you have 100% equity in your home.

In most circumstances, if you want to continue living there, you cannot sell your home to unlock that equity. But equity release offers a way for you to continue to live there yet still unlock a large proportion of your equity.

If you have paid off – or nearly paid off any mortgage – releasing that equity can give you access to the cash you might urgently need in later life. This could include long-term care in your own home, or it can be used for expenditure on projects such as renovating your property or having that dream holiday etc.

You can arrange equity release in one of two broad ways – a lifetime mortgage or home reversion. They differ in how they work, and one might suit your needs and circumstances better than the other, so you must consider carefully which route to choose. For this article, let’s weigh up some of the pros and cons of lifetime mortgages.

Is lifetime mortgage equity release good or bad?

Is equity release a good idea? There is no hard and fast answer to such a question because it all depends on your particular needs and circumstances.

Certainly, you can take reassurance that all equity release arrangements are regulated and authorised bythe Financial Conduct Authority (FCA)  and by unlocking the cash value otherwise stored up in your home, you get to enjoy that extra expenditure during your retirement.

For all that, however, there are certain risks involved, and equity release might not be suitable for every homeowner.

What are the advantages of lifetime mortgage equity release?

Thanks to regulation and authorisation by the FCA, equity release offers a safe way to free up some of the equity locked in the home you own. The cash value of that equity can be released in instalments or a single lump sum – just as you want – and comes with the following advantages:

It’s still your home

  • although you are unlocking a substantial proportion of the equity in your home, you still live in it – until the equity release agreement has run its course when you die or move into long-term care;
  • not only are you still living in the home you’ve grown to love, but you might also use some of the funds from your equity release agreement to extend, make home improvements, or adaptations that might become necessary if you have mobility issues or have become infirm;
  • by staying in your own home, of course, you avoid the stress, hassle, and cost of moving house;

Interest rates

  • although base lending rates vary over time, the interest on equity release lending is relatively low – according to the Equity Release Council, on the 2nd of April 2022 , the average rate of interest was 4.16% in January of that year;
  • more important than the actual rate, which will vary according to the date you completed the equity release agreement, is the fact that it can be fixed from the outset – so you know exactly how much interest you will be paying;
  • if you so choose, that interest can also be rolled over so that you pay nothing at all at the moment but only when the agreement reaches its full term (when the capital and accumulated interest are paid together when you die or move into long-term care);

Lump sum, instalments, and no tax

  • not only do you choose whether to accept a lump sum equity release payment or instalments that provide a regular income, but you pay no tax on those receipts;
  • neither will you pay any interest on the amounts agreed in your equity release plan until the cash is actually released;

No negative equity guarantees

  • all lifetime mortgages arranged by lenders registered with the Equity Release Council incorporate a “no negative equity guarantee”;
  • this guarantees that the debt represented by the agreed equity release never exceeds the value of your home when it is put up for sale as you move into long-term care or when you die;

Inheritance tax management

  • equity release may prove a valuable vehicle for managing future Inheritance Tax liabilities by passing on a cash gift to your family;
  • beware that the whole subject of Inheritance Tax is complicated and often obscure, so you will almost certainly benefit from the guidance of an independent financial adviser.

What are the downsides to equity release?

Remembering that we have been focusing on equity release through lifetime mortgages, the following are some of the downsides:

Inheritance issues

  • you must discuss any thought of equity release with your nearest and dearest;
  • because your home will be sold at the conclusion of the equity release agreement – and the principal and accumulated interest repaid – there will be no such property for your successors to inherit;

The commitment

  • a lifetime mortgage is just that – a commitment for life (until you die or move into long-term care);
  • although you can choose to vacate the agreement, there are typically punitive Early Repayment Charges;

No dependents

  • because your home will be sold when you die or move into long-term care, equity release is not appropriate if you have dependants living in the house with you;

Check your benefits

  • in some cases, any benefits you receive in addition to your state pension may be affected by the use of equity release;

Consider the interest repayments

  • although you may choose to roll over monthly interest repayments until the end of the agreement, by that time, the total interest repayable may be substantial – and will, of course, reduce any balance of equity otherwise available for those inheriting your estate;
  • an equity release lifetime mortgage takes priority as security against your home – there can be no other loans secured against your home while the equity release agreement is in effect, and any such loan must be repaid before the equity release is agreed;
  • take into consideration the additional costs involved in securing your equity release agreement – the valuation of your home, for example, and the fees you may need to pay for the obligatory independent financial advice you must seek before concluding the agreement.

Next steps

Is equity release a good idea for you? Hopefully, we have shown that it will all depend on your own unique needs and circumstances. Seeking professional, independent advice is essential so please feel free to contact us here at before taking the plunge and arranging any equity release agreement.

FAQs –  Equity Release Advantages and Disadvantages

Is equity release a good idea?

Equity release is a great way to manage your finances and protect your assets for your family. It’s also a very flexible solution which allows you to tailor the terms of your arrangement to suit your individual requirements. However, it will depend on your current circumstances and requirements. It’s better to contact a financial adviser before starting your application.

How does equity release work?

You borrow money against the value of your home and agree to make regular payments back to the lender. The amount borrowed is usually equal to the difference between what you owe on your mortgage and the market value of your home. This means that you don’t actually sell your home but instead give up ownership of it in exchange for an advance payment from the lender. Once this has been paid off, you’ll still own your home but the lender will take possession of it. They then sell it and use the proceeds to pay off the original debt plus interest. If you decide to leave your home early, you’ll simply stop making payments and the lender will repossess it.

What are the advantages of equity release?

There are many reasons why people choose to arrange equity release such as protecting their assets for their family, saving money on housing costs etc. However, there are some disadvantages also that you may need to consider by taking financial advice from an equity release broker.

Which are the major type of equity release?

There are many types of equity releases, you can read them on our blog here.

What is the role of the equity release council?

The Equity Release Council (ERC) was was set up in 2007 to promote best practices in the industry. Their aim is to help consumers understand how equity release works and to ensure that they get a fair deal when buying or selling their property.

Can I afford equity release?

It depends on your personal situation and whether you’re able to save enough money to cover the cost of borrowing. You should always seek independent financial advice if you want to know more about how much you could realistically expect to borrow.

Do I need to be over 55 years old to apply for equity release?

Yes, you must be 55 or older to apply for equity release. However, you do not need to be retired to apply. If you want to know the type of equity release available to you, please visit our blog here.

Is equity release suitable for me?

If you have any concerns about applying for equity release, speak with a professional who specialises in helping people find the right solution for them.

About The Author

mortgage broker damian youell

See some of Damian’s client reviews below

Damian is an experienced mortgage broker, founder of Ltd and company director. With over a decade working as a mortgage broker he has a strong understanding of hard to place mortgage cases. With hundreds of 5 star client reviews. hundreds of repeat clients his work speaks for himself.

He started as a one man band with the philosophy of putting clients needs ahead of his own. This ethos of offering excellent customer service has helped the business grow over the years. He gets satisfaction on getting cases pushed through to offer stage where other mortgage broker and companies have failed.

Throughout his time as an adviser he has carved out a niche area of advice helping clients with their business protection requirements too. Having helped hundreds of client with Relevant Life Policies, Shareholder Protection Insurance, Keyperson Policies and other important protection requirements of large to small businesses.

At home he is a family man and likes to spend his time with his four children and wife Lisa. He enjoys going on holidays spending time with friends and going for walks.