Looking For Equity Release Advice? We List the Pros, Cons and What to Consider First.

Equity release advice has grown in popularity over the past decade, with Later Lending peaking at over £6 billion of release in 2022, and it is not difficult to see why. For homeowners aged 55 and over who are asset-rich but income-poor, unlocking some of the value tied up in their property can appear to be a straightforward solution. But straightforward is rarely the right word for a decision of this magnitude.

The question ‘is equity release a good idea’ is one that requires an honest, personalised answer rather than a generic one. For some people in the right circumstances, it can genuinely transform their financial position in later life. For others, it can be a costly mistake with lasting consequences for their estate, their care funding options, and their family. The difference between these two outcomes almost always comes down to the quality of the advice received.

This guide explains how equity release works, what the main types are, what the real risks look like, and when it can be the right choice. It also covers the alternatives worth considering before you commit to anything.

What Is Equity Release?

Equity release is perhaps better described as Later Life Lending. This broader group consists both of products bearing the official name Equity Release, and of other mortgage products targeted at older borrowers, such as Retirement Interest Only Mortgages, giving consumers a broader range of choice of lenders and features.

Equity release – Later Life Lending – is a way for homeowners aged 55 and over to access the value tied up in their property without having to sell it or move out. The money can be taken as a lump sum, in smaller amounts over time, or a combination of both. You retain ownership of your home and continue to live in it.

We offer lots of equity release advice to our clients, with the two main types of equity release being lifetime mortgages and home reversion plans. Both work very differently, and the distinction matters.

1) Lifetime Mortgages

A lifetime mortgage is the most common form of equity release, accounting for the vast majority of plans (99%+) taken out in the UK. You borrow against the value of your home and interest is charged on the loan.

Unlike a conventional mortgage, you have a choice as to whether or not you wish to make monthly interest payments. Instead, you can opt to have interest be rolled up and added to the loan, which means the amount owed grows over time. This is called a Roll Up Lifetime Mortgage. Or, if you can afford to, you can choose to pay part (or all) of the interest and have the rest rolled up. This is called an Interest Only Lifetime Mortgage.

Retirement Interest-Only Mortgages look similar to Interest Only Lifetime Mortgages and are explained below.

Either way, with a Lifetime Mortgage, you never have to make any capital repayments, until such time as the loan, plus all accumulated interest, has to be repaid, which is when you either die or if/when you move into permanent residential care (usually with the property being sold).

Most lifetime mortgage products come with a no negative equity guarantee, which means you will never owe more than the value of your home. This is a key consumer protection, and any product that does not include it should be treated with caution.

Some lifetime mortgage plans allow you to ring-fence a portion of your property’s value as a guaranteed inheritance for your family. This drawdown facility reduces the amount you can release but preserves something for your beneficiaries.

2) Home Reversion Plans

A home reversion plan involves selling a share of your property to a reversion provider in exchange for a lump sum or regular income. You retain the right to live in your home rent-free for the rest of your life, but you no longer own the full value of the property.

Home reversion plans typically pay you below the market value of the share you sell, sometimes significantly below. The provider makes their return when the property is eventually sold. These plans are less common than lifetime mortgages and are generally considered less flexible. They are only worth considering in specific circumstances, and specialist advice is essential. 

The real risks of equity release

Equity release is not inherently dangerous, but it carries risks that are not always fully understood at the point of sale. Being clear about these is essential before any decision is made.

Compound interest can grow quickly

The most significant financial risk with a lifetime mortgage is the compounding of interest over time. If you take out a lifetime mortgage at age 65 and live to 85, twenty years of rolled-up interest can substantially reduce what is left for your estate. At an interest rate of 5% per year, a loan of 100,000 pounds would grow to roughly 265,000 pounds after twenty years, before any property value appreciation is taken into account.

Making voluntary interest payments, where the product allows, can significantly reduce this effect. Not all plans offer this option, and some charge early repayment penalties.

House price increases can also mitigate this. Using the same example, an interest rate of 5% per year, if the value of the house were to increase by 4% per year, then the ‘loan to value’ – the ratio between the size of loan and value of house – would only increase by 1% per year. Of course, future house price increases are not guaranteed.

Understanding the full mechanics of the product before signing anything is non-negotiable.

Impact on Means-Tested Benefits

Releasing equity increases your liquid assets, which may affect your entitlement to means-tested state benefits such as Pension Credit, Council Tax Reduction, and support with care costs, particularly if equity is released to cash and then hoarded. For this reason, it is generally a good idea to release only the amount you actually intend to spend.

The interaction between equity release and benefits entitlement is complex, and the effect is not always anticipated. A specialist later life financial adviser will assess this as part of any proper equity release recommendation.

Care Fees and Future Flexibility

If you need to move into residential care in the future, your home will generally need to be sold to fund those fees. At that point, an equity release lifetime mortgage loan needs to be repaid from the proceeds. The more equity you have released and spent, the less will be available to meet care costs later. For some people, this significantly narrows their options later on.

Care fees planning is closely linked to equity release planning, and they should be considered together rather than in isolation. Our later life team works across both areas, and you can find out more about our approach to care fees planning on our later life planning service page.

Impact on Inheritance

Equity release reduces the value of your estate. This is not automatically a problem if you have discussed it openly with your family and have made a clear-headed decision about your priorities. It becomes a problem when families are unaware of the arrangement and discover on the death of a parent that the expected inheritance has been substantially reduced.

Some plans allow you to protect a percentage of your property’s value as a guaranteed inheritance. This reduces the amount you can release but provides certainty. Whether this is the right trade-off depends entirely on your personal circumstances.

When Equity Release Can Make Sense

Equity release is not a last resort. For some homeowners, it is the most logical and financially sensible way to improve quality of life in retirement. The circumstances where it tends to work well include:

•       You have significant equity in your home and a relatively modest pension income
•       You want to fund home adaptations, healthcare, or a better standard of living in retirement
•       You have specific and costed spending needs
•       You have already considered and ruled out alternatives such as downsizing, using savings, or family support
•       Your estate planning has been properly addressed, and you are comfortable with the inheritance implications
•       You have taken independent specialist advice and understand exactly what you are committing to

 It is also worth noting that equity release is sometimes used as part of a broader inheritance tax planning strategy, enabling homeowners to gift money to family members while reducing the taxable value of their estate. This is a legitimate use but requires careful co-ordination with estate and IHT planning advice to ensure it achieves the intended outcome.

Alternative Equity Release Advice Worth Considering Before You Commit

A good equity release adviser will always explore alternatives before recommending a product. These include:

Retirement Interest-Only Mortgages / Older Borrowers Mortgages

As mentioned above, the modern Later Life Lending market is wider than just Equity Release products. Your adviser should consider all Later Life Lending options before recommending the most suitable option for you.

A retirement interest-only mortgage (RIO) closely resembles a Lifetime Mortgage – specifically the type of Lifetime Mortgage where you agree to (and can afford to, and can prove that you can afford to) pay the interest every month.

A RIO generally offers greater flexibility, more choice and shorter tie-ins than an Interest Only Lifetime Mortgage, and can be for either a fixed term or for life. But a RIO also offers less consumer protection and lower certainty of interest rates – and of course requires you to be able to afford to pay the interest.

You should take specialist advice before deciding which Later Life Lending product is most suitable for you.

Downsizing

Selling your current home and moving to a smaller or less expensive property frees up capital without interest rolling up over time. For many people, this is the most cost-effective option. The barriers are practical as much as financial: an attachment to the family home, proximity to family or community, or the physical demands of a move. These are valid considerations, but they should be weighed honestly against the financial costs of equity release.

Using Existing Assets

If you hold ISAs, investments, or other savings, drawing on these before considering equity release is usually more straightforward and less costly. A financial adviser can help you model the most tax-efficient drawdown strategy across your assets before you consider releasing equity from your home.

Why Specialist Equity Release Advice Matters

Equity release (and general Later Life Lending / mortgages) are regulated activities. Any firm advising on equity release or other mortgage products must be authorised by the Financial Conduct Authority, and the adviser must hold a specific equity release qualification. That is the regulatory minimum, not the standard you should settle for.

The Society of Later Life Advisers (SOLLA) is the professional accreditation body for later life financial advice in the UK. SOLLA accreditation signals that an adviser has demonstrated knowledge and competence across the full range of later life financial planning, not just equity release products. If you are looking for a later-life financial adviser, SOLLA accreditation is a meaningful indicator of expertise.

You can find SOLLA-accredited advisers through the SOLLA adviser search. Centurion are proud to hold more specialist financial planning accreditations than almost any other independent firm in the UK, including the largest number of SOLLA-accredited advisers in the country.

The Equity Release Council is the industry body for the equity release sector. Members are required to adhere to a set of product standards, including the no negative equity guarantee. You can check whether a provider is a member of the Equity Release Council and find consumer resources on their website.

For an independent overview of how equity release works, MoneyHelper provides clear guidance covering the key features, risks and things to consider.

The FCA also publishes guidance on equity release for consumers at fca.org.uk.

Frequently Asked Questions on Equity Release

Is equity release safe?

Equity release products regulated by the FCA and provided by Equity Release Council members include consumer protections, including in most cases the no negative equity guarantee. This means you will never owe more than your home is worth. You should check the terms of any arrangement before you enter in it, to see whether this guarantee applies.

However, safety in a regulatory sense does not mean the product is right for every situation. The risk is not that the product itself is unsafe, but that it may not suit your particular circumstances or financial position. Independent specialist advice is essential.

Will I still own my home if I take out equity release?

With a lifetime mortgage, yes. You retain full ownership of your property. The same applies for other types of Later Life mortgage. With a home reversion plan, though, you sell a share of the property to the provider, so you no longer own that portion, though you retain the right to live there. Most equity release taken out in the UK today is via lifetime mortgage, so full ownership is typically preserved. 

How does equity release affect inheritance tax?

Equity release reduces the value of your estate, provided of course you spend the money released and do not hoard it. This may reduce the amount of inheritance tax due on your death. However, the relationship between equity release and IHT planning is complex. If the released funds are gifted to family members, gift rules and the seven-year survival period become relevant. This is an area where co-ordinated financial and estate planning advice is important. 

Can I repay an equity release plan early?

Most lifetime mortgages allow early repayment, which means ‘repayment before you either die or go into care’. Early repayment charges can be significant, particularly in the early years of the plan. Some plans offer partial repayment options penalty free. It is essential to understand the repayment terms fully before committing to a product.

Where it is likely that an arrangement will be repaid early – perhaps when an inheritance comes in later for example – then more flexible types of Later Life Lending such as Retirement Interest Only Mortgages may be more suitable.

The terms vary considerably between providers and should be a key part of any comparison. 

How much can I release through equity release?

The amount you can release depends on your age, your property value, and the specific product. Older borrowers can generally release a higher percentage of their property’s value. As a broad guide, for equity release products, younger applicants aged 55 may be able to release around 20 to 25% of their property’s value, while those aged 75 and over may be able to release 40 to 45% or more. For other later life lending products, even borrowers in their 50s can potentially release 50 to 55%

A specialist adviser will provide a personalised assessment based on your circumstances.

How Centurion Can Help

Centurion’s later life planning specialists work with clients and their families across the full range of later life financial decisions, including equity release, care fees planning, inheritance tax planning, and estate planning. We are not product sellers. Our role is to ensure you understand every option available to you, the costs and implications of each, and how any decision fits within your broader financial and estate plan. If you are considering equity release or want to understand your later life planning options, visit our Later Life Planning service page or get in touch with our team to arrange an initial conversation.

Please note: This article is intended for general information only and does not constitute personal financial advice. Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. Your home may be repossessed if you do not keep up repayments on your mortgage. Always seek qualified independent advice before making decisions about equity release or any other later life financial product. The Financial Conduct Authority does not regulate estate planning’