Equity Release: Is It Really a Good Idea for You?

Thinking about unlocking cash from your house but not sure if equity release is a win or a trap? You’re not the only one. Loads of folks look at their home value and think, "It’s just sitting there—why not use it?" But once you scratch beyond the shiny brochures, things get complicated in a hurry.

The basics: equity release is usually for people over 55 who want to pull money out of their home while still living there. Popular choices are lifetime mortgages and home reversion plans. Each works differently; with a lifetime mortgage, you still own your home and usually don’t pay anything back until you die or go into care. A home reversion plan means you sell part of your home now in exchange for a lump sum, but you might only get 20-60% of its market value. Sounds simple, but the long-term effects on inheritance, bills, and your sense of control can surprise you. Picking the right option (or deciding it’s not for you) takes some digging—and honesty about your situation.

• How Does Equity Release Work?
• The Real Pros and Cons
• Extra Costs No One Tells You About
• Alternatives Worth Considering

How Does Equity Release Work?

So, here’s the plain truth. Equity release lets you get some of the value out of your home as cash, without selling up or moving out. Most people take this step when they’re over 55 and own their house (or most of it). It’s a way to turn a chunk of your home’s value into money you can actually spend—maybe on home repairs, a big trip, paying off debts, or just making life a bit easier in retirement.

Two main types are out there:

• Lifetime mortgage: You borrow against your home’s value. The loan, plus interest, gets paid off when you die or move into permanent care. You still own your home while living in it. Most folks use this option—about 95% of equity release plans in the UK are lifetime mortgages (as of 2024).
• Home reversion plan: With this, you sell all or part of your home to a provider in exchange for a lump sum or regular payments. You get to live there rent-free until you die or move out, but you lose full ownership. You’ll only get 20–60% of the current market value for the share you sell.

With both options, you can take the money as a lump sum or in smaller amounts over time (called 'drawdown'). The older you are, and the less you owe on your house, the more you can usually unlock.

Here’s a quick comparison:

The most important thing: if you choose a equity release scheme, go with a provider from the Equity Release Council. They make sure you won’t ever owe more than your home’s value ('no negative equity' guarantee) and you can’t get kicked out while you live there.

Watch out for how interest stacks up (especially with lifetime mortgages), and always, always get independent advice before signing up for anything. These deals can last decades, and the wrong move eats into any inheritance you may want to leave behind. Think it through. Do the math. And ask every question—even the ones that feel obvious.

The Real Pros and Cons

There’s a lot of hype about equity release, but what actually works in real life and what can trip you up? Let’s cut straight to it. Here’s what’s good and what’s not, based on how these deals play out for most people.

• Quick access to tax-free cash. This is the big pull—using the money for anything from home improvements to a holiday to helping your kids with a house deposit.
• You stay put. There’s no need to downsize or leave the place you love. Jasper would never forgive me if I moved him out of his favorite spot by the window!
• No monthly repayments for most lifetime mortgages, so your budget doesn’t take a hit every month.

But now, the other side of the coin. The parts the glossy brochures don’t exactly shout about:

• Compound interest is a killer. The interest on that lifetime mortgage gets added to the original sum, then you pay interest on that interest. It can double or triple what you owe in 15–20 years.
• Reduces what you leave your kids. You’re spending their possible inheritance—full stop.
• Releasing equity can hit your eligibility for means-tested state benefits. That lump sum might push you over the limit for things like Pension Credit or Council Tax Support.
• Early repayment charges. These can be chunky if you want to pay off the loan early—sometimes as much as 25% of the loan amount.

This isn’t just talk. Here’s what the data says about average costs and outcomes:

A real “pro” for some people is peace of mind—you get to enjoy your retirement with a cash cushion instead of worrying about leaving all your wealth tied up. But go in with your eyes open: this is a long-term commitment you (and your family) feel for years down the road.

Extra Costs No One Tells You About

So, you see the adverts about equity release and all you hear is “tax-free cash in your pocket!” What nobody’s shouting about is how much it actually costs to set up and run these deals. If you’re thinking it’s just a simple loan with regular interest, think again. The extra fees pile up fast—and they take a chunk out of what you end up with, or what your family might inherit.

Here’s a breakdown of some real costs that often catch people off-guard:

• Equity release setup fees: You’ll usually pay a one-off arrangement fee to the lender, which can be anywhere from £500 to £2,000. Some lenders might roll this into your loan, but that means you pay interest on it too.
• Legal fees: Solicitors are needed to handle the paperwork. This is more than your standard home sale—budget £800 to £1,500 for legal costs.
• Surveyor or valuation fees: Your home needs to be valued before any deal is done. Some lenders offer a free valuation, but not all do. Expect anything from £150 to £350.
• Advice fees: You legally have to get financial advice before starting. This usually means an adviser’s fee of £500 to £1,500. A good adviser saves you money, though.
• Early repayment charges: Want to pay off your plan early—maybe you come into some money or want to move? Some providers can hit you with an eye-watering penalty of 5% to 25% of your original loan.
• Interest: With a lifetime mortgage, you’re not just paying interest each year—the amount owed snowballs as interest stacks up on top of itself. This is called compound interest, and over 15–20 years it can double or triple what you owe. The average interest rate in the UK is about 6.5% as of mid-2025, according to the Equity Release Council.

Here’s a quick look at the main extra costs if you decide to tap into your home’s value:

Also, if you ever need to go into a care home, you might have to pay extra admin fees when your house is sold and the loan is paid off. These little add-ons aren’t huge individually, but together they really eat into your home’s value.

Don’t forget about things like switching or porting your plan if you want to move house. Not every provider makes this easy or cheap. Always double-check the small print, ask questions, and get every cost in writing so you’re not left with less than you bargained for.

Alternatives Worth Considering

Before jumping into equity release, it’s smart to check if there are other ways to get the cash you need. For some, unlocking money from the house isn’t the only card to play—and definitely not always the best one. Let’s look at a few real options.

• Downsizing: Selling your current home and moving to something smaller or cheaper can free up a chunk of money without any lifelong debt. The catch? You have to be cool with moving and all that comes with it—new neighbours, maybe less space for those boxes you never unpacked. It’s the most common go-to for folks over 60 according to UK property surveys.
• Taking in a lodger or renting out a room: The UK’s Rent a Room Scheme lets you earn up to £7,500 tax-free by renting part of your home. Lots of people do this, especially in cities. Anytime Jasper hears a stranger, he barks his head off, so maybe not practical for pet owners like me, but plenty swear by it for extra monthly income.
• Family help or informal loans: Before putting your house on the line, have the money chat with kids or close relatives. Family loans or gifts aren’t right for every family—but when they work, there’s no interest and no paperwork monster waiting in the cupboard. Also, you could explore selling part of your home to a family member to keep things simple.
• Personal loans or credit lines: For small amounts, some people find a standard bank loan, overdraft, or even credit card gets the job done with less long-term impact than equity release. But be honest about your repayment options, especially on a fixed income.

Here’s a quick table to help compare these choices at a glance:

No one-size-fits-all here. The right move depends on how much money you actually need, your comfort level with change, your health, and how important it is to leave an inheritance. The more you look around first, the better call you’ll make—and maybe save yourself a few headaches down the road.