Equity Release: What's the Catch?

Thinking about unlocking some money from your home? Equity release sounds pretty simple—tap into the value locked in your house and get a cash payout. But before you start picturing that new car or dream vacation, it’s smart to ask: what’s the catch?

Lots of folks over 55 in the UK use equity release for everything from home upgrades to boosting their retirement income. Companies flash big numbers and talk about how you never have to move or make monthly payments. That’s all true, but there are strings attached.

The biggest catch is how quickly interest can add up if you go for a lifetime mortgage (which is what most people do). Say you unlock £50,000 today—if you don’t pay back a penny, that debt can double in 10-15 years because of compound interest. Your kids might end up with way less inheritance than they expected. Not all providers are upfront about that in TV ads.

The details matter. Who owns your home with these deals? Can you move if your needs change? Will you lose out on state benefits? These questions have real impact, so getting the plain facts is the best way to avoid nasty surprises down the line.

• How Equity Release Really Works
• What They Don’t Mention Upfront
• Hidden Costs and Surprises
• Smart Moves Before Signing

How Equity Release Really Works

Let’s break this down. At its core, equity release is a way for folks aged 55 and up to access the value built up in their home. You either get a lump sum, regular payments, or sometimes both. It’s kind of like taking out a loan against your house, except you don’t need to make monthly repayments. The big idea is you stay put, keep the place in your name, and the money only needs repaying when you move into long-term care or pass away.

There are two main options:

• Lifetime mortgage. By far the most popular. You basically borrow money against your house, with interest rolling up on top. You still own your home.
• Home reversion. A provider buys a share—or even all—of your home. You get a lump sum or regular payments and can stay in the house for life. The catch? You’re selling at a discount, so what you get is usually much less than market value.

Here’s a quick look at what households usually get from equity release compared to what their home is worth:

Interest rates have crept up in the past few years. In April 2025, the average lifetime mortgage rate was about 6.5%. That might sound better than some credit cards, but the key thing is compounding—interest adds to your balance and then the next year, you pay interest on both the original amount and the interest from last year. This snowballs fast.

Applying for equity release is kind of like getting a mortgage—there’s paperwork, legal checks, property valuation, and financial advice (which is actually required by law in the UK). The lender will look at your age and the property’s value. Usually, the older you are, the higher the amount you can unlock.

Every deal is different. Some plans let you ring-fence a portion of your home value as a guaranteed inheritance. Some let you repay interest to slow the debt down. But whatever route you pick, the big players in the industry—like Legal & General or Aviva—will expect their money back when you no longer live in the home, usually from the proceeds when your house is sold.

What They Don’t Mention Upfront

When you hear about equity release, the ads usually show happy couples fixing up their garden or treating the grandkids. What slips through the cracks are the rules and catches that don’t make it into the TV jingles.

First up, most people don’t realize how strict some plans are. Sure, you can stay in your house for life, but if you move to a care home or need to relocate, your deal might say you need to repay right away. Providers don’t always highlight that moving home later could trigger a huge bill.

Then there’s the impact on means-tested state benefits. The cash you unlock can push your savings over the limit, leaving you missing out on things like Pension Credit or Council Tax Support. Advisors sometimes gloss over this, so you get a cash boost now but might lose help for years ahead.

And check the small print for early repayment charges. If your plans change or you come into some money and want to pay off the debt, some lenders slap on hefty fees that run into the thousands. Not everyone spots this at the start.

Another thing—if you share your home with someone who isn’t on the equity release deal (like an adult child), they could be forced out if you die or move into care. The lender controls what happens to the home, not you or your family.

• Provider limits on leaving money as inheritance are often fuzzy. Even with 'no negative equity' promises, lots of your house value can vanish in interest over time.
• Most plans can’t be transferred to a new home unless the provider agrees the new property fits their criteria.
• The advice you’re given isn’t always fully independent. Some advisors get big commissions from lenders for selling a plan.

Don’t expect telemarketers or glossy brochures to spell out these catches. Always ask how every part of the deal could change your finances down the road—especially if family relies on your home for future security.

Hidden Costs and Surprises

Here’s where people often get caught out. The upfront pitch for equity release can feel crystal clear, but the real expenses come packaged in all sorts of extras and what-ifs. These aren’t always highlighted in those glossy brochures or slick adverts.

For starters, there’s the setup fee. Most lenders charge to arrange the plan—think legal fees, valuation costs for your house, and the company’s own admin bills. These can add up to £3,000 right from the get-go. You might see deals that say “no fees,” but check the small print—they often roll them into your loan, meaning you pay interest on them for years.

Ongoing, the biggest shock is compound interest. If you don’t pay any of it off, your debt piles up and can quickly eat away at your remaining equity. Here’s a look at how it adds up if you take out £40,000 with a 6% annual interest and never pay any of it back:

Some plans do let you pay off the interest, but that’s not standard. Also, if you want to pay off some or all of your loan early because, say, you suddenly want to downsize, expect a big early repayment fee. These penalties can be thousands extra and seriously change your plans.

Now, let’s talk about losing benefits. If you claim things like Pension Credit or Council Tax Reduction, that lump of cash you take out can reduce or stop these payments. The rules are messy, so always double-check with an adviser before signing anything.

Finally, some people find small print hiding extra charges—like annual admin fees or costs for switching plans. Ask for a complete breakdown before going ahead. Transparency isn’t always the default setting with these products, so don’t assume you’ve seen all the numbers unless you get them in writing.

Smart Moves Before Signing

Before you agree to any equity release deal, take a step back and do some homework. There’s no rush—companies want you to sign quickly, but this is about your home and your long-term security.

Start by getting independent advice. A qualified financial adviser who isn’t tied to any particular provider will spell out exactly what’s good and what’s risky about the plan. They’ll walk you through terms that often get glossed over, like early repayment charges or how the debt grows over time.

You’ll want to see what this means for your family too. Some deals let you set aside part of your home to protect an inheritance, which is handy if you want your kids or grandkids to get something later. The numbers matter here—a step as simple as borrowing less or taking cash in smaller amounts can make a massive difference to what your loved ones receive in the end.

Always check whether taking out equity release will affect benefits like Pension Credit or Council Tax Support. There’s a good chance money from your home will push your savings over a limit, which means you lose out on extra help each month. Providers are meant to warn you, but don’t rely on quick chats with salespeople for this kind of detail.

Here are some steps to stay safe:

• Compare more than one provider’s offer. Interest rates and terms can be miles apart—even a fraction of a percent matters over ten years.
• Ask direct questions about fees. Application, set-up, and legal costs can eat into your payout quicker than you expect.
• Check for the "no negative equity guarantee"—this means you (or your estate) won’t owe more than the house is worth when it’s eventually sold.
• Talk it over with your family. Honest conversations now can avoid drama later, especially with inheritance on the line.

And don’t forget: you can walk away at any stage before signing the contract. Equity release is irreversible once you go ahead, so don’t feel pressured. People who rush it almost always wish they’d stopped to double-check the fine print.