Equity Release Risks: What You Must Know Before Unlocking Home Equity

When you consider equity release, a financial tool that lets homeowners aged 55+ access cash tied up in their property without selling. Also known as reverse mortgage, it’s not a loan you pay back monthly—it grows over time and gets repaid when you die or move into long-term care. It sounds simple: get cash, stay in your home. But the risks? They’re serious—and often misunderstood.

One major risk is compound interest, how the interest on your equity release loan builds up over years, sometimes doubling or tripling the original amount borrowed. If you take out £100,000 at 6% interest, in 15 years you could owe over £240,000. That’s not magic—it’s math. And it eats into what you planned to leave your kids. Many people don’t realize their home might be worth less than what’s owed when the time comes to repay. That’s why lifetime mortgage, the most common type of equity release in the UK. needs careful review. You’re not just borrowing money—you’re trading future inheritance for current cash.

Another hidden risk? Losing eligibility for means-tested benefits. If you suddenly have £50,000 in the bank from equity release, you might lose housing benefit, pension credit, or council tax support. Some people don’t realize this until it’s too late. And if you move or need care later, your options shrink fast. Equity release isn’t flexible. Once you sign, you’re locked in. Early repayment penalties can be brutal—sometimes 25% or more of what you borrowed. And if you try to switch providers? Good luck. The market is tight, and most lenders won’t take over an existing deal.

Then there’s the emotional side. Families often don’t talk about this until after the fact. A parent takes out equity release to cover medical bills or home repairs, and the children only find out when the estate is being settled. That’s when resentment builds. It’s not just money—it’s trust. That’s why getting independent financial advice isn’t optional. It’s essential. A good adviser will show you the numbers, compare options, and warn you about traps like negative equity guarantees (which aren’t always as strong as they sound).

And here’s something most brochures don’t mention: if your home’s value drops, you’re still on the hook. Unlike a regular mortgage, you can’t walk away if prices crash. The lender gets paid first from the sale, and if there’s nothing left? You’re not personally liable—but your estate is. That means your heirs get nothing. No house. No savings. Just a bill that’s already been paid.

Not everyone needs equity release. Some people are better off downsizing, using savings, or even working part-time. But if you’re considering it, you need to know the full picture—not the glossy brochure version. Below, you’ll find real breakdowns of how interest builds, who benefits most, what the current rates look like in 2025, and how to spot a bad deal before you sign. These aren’t theory pieces. They’re written by people who’ve seen families torn apart by this exact mistake. Read them before you make a decision that changes everything.