Pros and Cons of Equity Release and the pitfalls in 2020

In recent years equity release has become a very popular option among people of retirement age who own their own property but do not have much money in the bank.  In this article, we look at the pros and pitfalls of equity release.  The most popular type of product that people use is called a lifetime mortgage.

To put it simply, releasing equity is a method of borrowing money on the total estimated value of your estate so that you are able to enjoy your retirement to the full without having to sell their home or having to scrimp due to lack of funds. Typically this is done through taking a lifetime mortgage.  

Read on to discover the potential benefits as well as the pitfalls of equity release.

Before we share the tips below, here is a short video that sets out some of the pros and the pitfalls of releasing equity. We do recommend that you watch this as whilst there are many advantages, there are disadvantages that you should consider.

Here is a video outlining the pros and cons of equity release.

Is equity release a popular option?

Research from Age UK shows over 15.3 million British citizens are now aged 60 and above.  Therefore,  it’s no surprise that products, such as a lifetime mortgage, is growing in popularity. As per the reasons outlined above they are a good way of providing yourself with a steady source of income whilst at the same time allowing you to maintain the lifestyle you want through retirement and later life.   

In addition, it is a popular way to pay for long term care.  

In addition, with the cost of getting on the housing ladder so high, so a lifetime mortgage is a way for parents to assist their kids buy their first house.  Part of the reasoning behind this is that they think that passing the house on when they die is likely to be too late and they want to help their children out now.  

The lending criteria has improved and competition between providers has brought interest rates down. However, taking a lifetime mortgage certainty isn’t for everyone. We would certainly recommend you speak to a specialist before you do anything.  You can get some free advice by calling 0800 953 3792.

Read about the pros and cons of equity release below.

The Pros of Equity Release

1. There is No Need to Move House

Homeowners may receive some of the value of their property without having to sell it or move to a smaller property. This means that elderly home owners can enjoy their home right up until their death if they wish.

2. Tax-Free Revenue

The sums that are released on the value of the property are not subject to tax. This may provide an essential form of income.

3. Regular Payments

Most schemes provide regular payments rather than a lump sum. This supports recipients to manage their budget more effectively.

4. No Monthly Payments

Unlike with other types of loans, recipients do not have to worry about keeping track of or struggling to make monthly repayments.

5. Fully Regulated Operators

Most providers who offer packages are members of the Equity Release Council and are bound to abide by strict rules and regulations.

One of the most important of these is the no negative equity guarantee, which means that if the value of the property happens to fall below the amount borrowed the property owner will not be asked to make up the difference.

6. Low Interest Rates

The interest rates on loans are usually fixed for the entire duration of the loan and tend to be much lower than the interest rates of most types of traditional loans.

7. Avoidance of Inheritance Tax

People who receive money have the option of making cash gifts to their loved ones during their lifetime so that friends and family do not have to pay inheritance tax. This could be an effective way to pass your wealth on.  

8. No Increase of Monthly Outgoings

Generally speaking, recipients of a mortgage do not have to repay the money that has been unlocked or even the interest on the loan until their either die or decide to move into long-term care.

This means that until that point, the plan will not actually cost you anything except the set-up or advice costs that are generated.

9. Freedom to Spend Finances in Any Way

There is no limit on the ways that recipients can spend their new found cash. Whether they decide to take a well deserved rest by going on a cruise, provide their family with cash or renovate their home, the choice is entirely theirs.

Try the equity release calculator below and see how much money you may get out of your house. I think you will be surprised at what you could get……tax-free!

disadvantages of equity release

Is equity release right for you?

Obviously, is not right for everybody.  Particularly, if you have no need for the money then you should think carefully about taking a mortgage.  It is typically used to provide an income but if you have this elsewhere, perhaps through a pension or savings then you may not need to use it.  

Before making a decision you should always talk to a qualified financial adviser. A professional will be able to help you understand whether it is right for you and explain the different types of products available, such as a lifetime mortgage or a home reversion plan. Depending on your product and plan, a mortgage can be an expensive way to borrow an amount of money.

You can get some free advice by calling 0800 953 3792.

Whilst there are obvious pros and cons of equity release, we have set out more cons below. 

The pitfalls of Equity Release

1. Less Inheritance for Loved Ones

One of the major pitfalls of a lifetime mortgage is the fact that upon the instance of death, loved ones will not be able to inherit the full value of the property.

2. Difficult to Change Policies

People who wish to quit their policy are likely to find that they are charged an early repayment penalty, which may be rather high.

3. State Benefits may be impacted

People who receive certain means-tested benefits such as free eyeglasses, dentistry, pension credit and council tax and pension credit could find that deciding to opt for a plan affects these benefits.

However, for those over 65, state pensions aren’t affected.  However, this is dependent on your individual circumstances and the borrowing purpose. It’s really important that you take a close look at what kind of payment amounts you’re receiving, or expect to receive, from the government.

Also, consider how taking a lifetime mortgage could factor into your long-term care plans if you are expecting to receive support.

4. Can be Costly to Set Up

There are several different fees incurred in the process of setting up a loan such as the application fee, the valuation fee, the solicitor’s fee and even the cost of seeking advice.

5. Difficulty in Remortgaging Property

People who wish to remortgage their property at a later date are likely to find that their options are rather limited.

6. Potential to miss out on rising house prices

Because the value of the equity release loan is directly linked to the price of the property at the time when the policy is taken out, people who hold this type of policy will not receive extra cash if the value of their property rises.

Because there are so many factors involved, it is essential to consider opting for a policy carefully and take the time to shop around for the best deal.

There are several reputable providers available to choose from and potential clients should read reviews from previous clients and make sure that they read all the small print on the policy before signing.

It is also a good idea to discuss the idea with loved ones and seek their input in order to avoid disputes in the future.

7 – Could a lifetime mortgage or home reversion plan wipe out my kids’ inheritance?

This is something you should consider carefully.  An interest rate of 5.5%, for example, compounded annually on a £100,000 lump sum amount, would add interest costs over a ten-year period of over £70,000.

That could mean there’s not much value left in your home to pass on to loved ones. This could become a further problem if house prices don’t rise or if they fall.

The good news is that reputable equity release products come with a “no negative equity guarantee”. All products provided by those providers who are members of the equity release council and are authorised and regulated by the financial conduct authority (the FCA) sign up to the “no negative equity guarantee”.

What this basically means is that should house prices collapse or if the rolled-up interest is higher than the house price, your beneficiaries will never owe more than the value of the property.

Here is a short video on how a lifetime mortgage works.

Speak to an equity release specialist about their advantages and disadvantages

To assist our site users you can have a free consultation with an equity release specialist to help you better understand how it works and what your options might be.

To do so you can book an appointment directly using the calendar below.  Just pick your preferred time and date and someone will call you to help.


Or you can speak to someone about the best deals available today by calling 0800 953 3792.

Different types of equity release products

The most popular type of equity release products are lifetime mortgages.  You may read more about how a lifetime mortgage works by clicking here. The other more popular options are drawdown lifetime mortgages and Home Reversion Plan.s

Best equity release interest rates 

The table below sets out the best equity release interest rates available today.

Equity Release ProviderRateKey Feature
Legal General 2.9%Cashback & free valuation
Pure Retirement2.99%10%pa Partial Repayment Option
More 2 Life3%Downsizing Repayment Charge Exemption
Legal & General 3%Cashback & free valuation
Aviva3.4%3-year No Early Repayment Charge

However, you should note that these deals change daily.  To get the latest interest rates please call 0800 953 3792.

Infographic with the pros and pitfalls of equity release

You can read more about the cons below the graphic.

Pros and cons if equity release infographic

Speak to an equity release specialist about their pros and cons

To assist our site users, you can have a free consultation with an equity release specialist to enable you to better understand how it works and what your options might be.

To do so you can book an appointment directly using the calendar below.  Just pick your preferred time and date and someone will call you to help.


Try the equity release calculator below and see how much money you can get out of your house. I think you will be surprised at what you could get……tax-free!

Summary of this page

1 - What is an equity release calculator

An equity release calculator will tell you how much money you could receive as a tax-free lump sum. The amount is usually dependant on your age and the value of your house.

2 - What sort of interest rates are applied to equity release mortgages?

Interest rates vary and can be anywhere between 3% and 7%. You can call us on 0800 953 3792 and get information on the latest deals, as they can change every day.

3 - Is the money from equity release tax-free?

Yes, the money you receive is tax-free. However, if you are in receipt of means-tested benefits then these can be impacted. You can contact us on 0800 953 3792 and see if you would be impacted.

4 - What can you use the money from equity release for?

The money from equity release can be used for a variety of things. Typically it is used to pay for long term care, modify your home to help with later life living or even to treat yourself to a holiday of a lifetime and help your family financially.

5 - What are the different types of equity release mortgage?

The most popular type is called a lifetime mortgage. If you are over 65 then a home reversion plan might be a better option, Get in touch with us and we will be able to tell you what we think would be best for you.

How Does Equity Release Work

Use the Equity Release Calculator

What are Lifetime Mortgages

With recent reduction in interest rates there are some really good equity release deals available.  The cheapest that we have seen in over 10 years!  Contact us for free, in conjunction with Key Advice, to see what you could get.

You can speak to us on the number below and see what today's deals are or just have your questions answered.

0800 953 3792

Use our equity release calculator and see how much money you could receive.

You can book an appointment for a specialist to call you when it's conveniant for you

All equity release advice is provided in conjunction with Key Partnerships.

Choose how you want to engage with Key below

Recent reductions in interest rates mean that there are some great equity release deals available.  See what you can get.

Leave your details here and we'll get in touch