Is Equity Release a good idea and is it safe?

Is Equity Release a good idea and is it safe? main image

Is equity release a good idea in 2022?

Equity release could be a good idea if you’re 55 or older and want extra money for retirement, home or garden improvements or perhaps to help family financially. An equity release mortgage has no monthly repayments and lets you access tax-free cash from your home without having to move. However releasing equity is not suitable for everyone.

Try the equity release calculator to see if its right for you

Given that you are dealing with what is probably your biggest asset, your home; equity release is not a decision that should be taken likely. The following guide explains about the safety, the downsides and the pros and cons of equity release to help you decide if it’s a good idea for you.

What is equity release and is it a good or bad idea?

Equity release mortgages are becoming more popular as people look for ways to increase their income or provide a cash lump sum to make life more enjoyable. But is this way of releasing tax free cash a good idea or a bad idea?

The most popular scheme is known as a Lifetime Mortgage. The interest accumulated is added to the original equity you release and only repaid once your home is sold, so there are no monthly repayments. This could be good for those wanting to reduce monthly outgoings but a bad idea if you planned to leave property for family.

To be eligible for equity release you need to be at least 55 years old, own your own home and have sufficient equity in your property, which is the difference between the value of your property and any outstanding loan or mortgage you may have secured against it. You don’t have to have a mortgage free property, as any existing mortgages or loans can be repaid with the money you release.

Equity release mortgages are becoming more popular as people look for ways to increase their income or provide a cash lump sum to make life more enjoyable, but whether its a good idea or a bad idea for you will depend on your own personal situation.

So what is the catch with equity release?

The catch with equity release is the interest is compounded, so grows much quicker compared to a residential mortgage. Equity release lets you access the money tied up in your home, making life that bit easier financially.

But if you prefer to use some of the money that’s available to you now, rather than leave it as an inheritance, equity release could be a good idea for you.

Latest news May 2022: Equity release interest rates are at some of their lowest starting from 3.57% APR and will be fixed for the rest of your life - so now could be a good time to consider your options

Is Equity Release Safe?

Equity release is safe as it’s regulated by the Financial Conduct Authority (FCA) and overseen by the Equity Release Council (ERC).  Their rules and safeguards ensure you always own your home and have flexibility to move. In addition, all FCA and ERC governed lifetime mortgages come with a no negative equity guarantee.

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

  • Interest rates must be fixed or if variable, there must be an upper limit or cap that is fixed for the lifetime of the loan
  • You must be able to stay in the property for life or until you move into care, just so long as you abide by the terms and conditions of your lifetime loan
  • You have the right to move to another property as long as your provider is happy that the new property offers continued security on your equity loan.
  • The lifetime mortgage must come with the all important ‘No negative equity’ guarantee which means that when the property is sold and solicitors and agents fees have been taken into account, if the amount left is not enough to pay the outstanding loan, neither you or your estate will be liable to pay any more.

In addition to these product standards, for your security the Council also provides strict rules and guidance on the sales process. To ensure you understand exactly how does equity release work, they stipulate that you can only take out a loan if you receive professional financial advice and independent legal advice.

So to be certain that your equity release plan is safe, you just need to ensure the company you choose is a member of the Equity Release Council.

How much equity can I get?

is equity release safe 2020

Pros and cons of equity release

Considering the pros and cons of equity release and reviewing both the advantages and disadvantages will help you decide if releasing equity is the best option for you. For some homeowners, unlocking money tied up in their home will be a good idea. For others, there may be a better, more suitable solution.

For example, for many homeowners one of the main advantages of equity release is there are no monthly repayments. However, one of the main drawbacks of equity release is that interest rates are higher compared to residential mortgages and interest is compounded, so will grow much quicker.

Whether the positives outweigh the pitfalls will depend on your personal requirements. Which is why understanding all the pros and cons from the outset is key.

What are the advantages of equity release?

  • The money is tax free - The equity you release from your home is tax free and you can spend it how you like
  • No monthly repayments - There are no monthly repayments unless you choose a lifetime mortgage plan that lets you repay some of the interest
  • You own your home - You continue to have full ownership of your home and can live there for the rest of your life or until you move into long term care
  • You benefit from increasing house prices - Although your loan will continue to grow as the interest is added, so hopefully with the value of your property
  • You will never owe more than the value of your property - As members of the Equity Release Council, equity release providers guarantee that you or your family will never owe more than the value of your home
  • Flexibility to release equity when you choose - You can release money as and when you like with a ‘drawdown’ facility (with this type of plan you only pay interest on the money you have taken, not the amount held in reserve)
  • You can still move home - You have the flexibility to move in the future as long as your equity release providers approves the property
  • Equity release interest rates are more competitive - Equity release interest rates reduced throughout 2020, which is a pattern that has continued throughout 2021.

What are the disadvantages of equity release?

  • Interest rates tend to be higher - Although as mentioned, equity release rates have now dropped to as low as 2.30%, making it a more competitive option
  • Interest is compounded - The money owed can increase quickly as you pay interest on the interest accrued. Choosing a drawdown facility can help as you only pay interest on the money you have released. Also, you could choose a lifetime mortgage that lets you repay some of the interest, therefore reducing the size of the loan
  • It will impact any inheritance you leave - It will negatively impact any inheritance you leave. As the loan is repaid from the sale of your property, it will have a negative impact on any inheritance you wish to leave. Some lifetime mortgages allow you to ring fence a percentage of the property value but this will reduce the amount of money you can release.
  • There may be penalty fees for repaying the loan - Some lifetime mortgages charge early repayment fees if you wish to repay the loan
  • State benefits may be affected - The tax-free cash you receive may negatively impact your entitlement to state benefits.

Avoiding the pitfalls of equity release

Any pitfalls or disadvantages to releasing equity from your home should be highlighted when reviewing your options with an equity release specialist. As members of the Equity Release Council, providers have a responsibility to ensure customers have been advised of the risks, features and benefits of equity release and that they have considered all the alternatives.

Use the calculator to see if its right for you

Six equity release tips

  1. Consider all the alternatives first
  2. Only borrow the money you need or choose a drawdown scheme
  3. Consider interest repayments or inheritance protection options
  4. Compare types of equity release
  5. Get independent advice from a qualified equity release adviser
  6. Check options for early repayment

In conclusion

Equity release is a big decision, so it’s worth considering the pros and cons before deciding if equity release is a good idea for you.

In addition to our guides, our equity release calculator is quick and easy to use and will show you how much cash you could release.

Try the calculator

Speaking to a specialist adviser will then help answer any questions you may have so you can fully understand the process and how it works.

An adviser who can compare equity release plans across leading UK lenders and could potentially save you money as they are not tied to one particular lender.

Equity release is safe and you will always own your home – you just need to weigh up the pros and cons to decide is equity release is right for you.

Important Facts about Equity Release


Will I still own my property?

Yes, with a Lifetime Mortgage you continue to own the property until you die or move into permanent care and the property is sold. (There is another form of equity release known as a Home Reversion Scheme which involves selling all or part of your home to a company however this option is not as popular in the UK).

How safe is equity release?

Is equity release safe is a common question; all providers are members of the Equity Release Council which will give you safeguards and importantly you will never lose your home. In addition, we recommend that you should always speak to your family.

Will my children inherit my debt?

Your children won’t inherit the debt however once you have died, they will need to repay the loan from the proceeds of the sale of the property. Once the loan has been repaid, any remaining equity would then be paid to your children.

What’s more, for your added security all lifetime mortgages with companies that are members of the Equity Release Council now come with a “no negative equity guarantee”, which means that you will never owe more than the value of your home.

Can I repay the loan if my circumstances change?

Yes you can repay an equity loan at anytime however you may incur additional admin fees or early repayment charges. There are schemes that let you repay some of the interest on a regular basis which may be worthwhile if paying off your loan is a consideration.

You can also move house if you wish, subject to the size of your outstanding loan and the value of the new property.

Your adviser will help you explore all the options before deciding if equity release is a good or bad idea for you.

Will this affect my State Benefits?

Potentially yes, your benefits could be affected depending on your own individual circumstances. Your adviser can help you with this and you can also go to the Benefits Agency or Citizens Advice for more information.

How can I avoid any pitfalls of equity release?

To ensure you avoid any pitfalls, it's important to get advice from a qualified financial adviser (visit for your nearest adviser). All Lifetime Mortgage companies in the UK are regulated by the Financial Conduct Authority and as members of the Equity Release Council, you are also protected by their strict rules and guidance.

Your solicitor can also act as a good independent point of advice.

Equity Release could be right for you

It could make life that bit easier

Updated 13th May 2022 by Ashley Shepherd

Ashley is the founder and managing director at Over50choices. With over 30 years’ experience in financial services, he has held senior roles in building societies, banks and insurance companies.

Ashley Shepherd

Don't miss out...

Sign up to our monthly newsletter for the latest updates