Equity release: a good option or one to avoid?

Jeff Salway - Financial journalist and mental health counsellor
Last updated 10^th February 2025
8 min read

If you’re at all familiar with the term ‘equity release’, there’s a good chance you’ve developed a firm perception of it.

Whether you’ve had direct experience of equity release, read articles about it, heard someone talking about it, or seen the many adverts on TV, you may well already have a view as to whether it’s a good or a bad thing.

For people who have a positive experience of equity release, the products can be lifechanging. For others, however, the poor outcomes can be – and have been – distressing.

We’ll look shortly at whether or not equity release still deserves the negative reputation that it once attracted. But firstly, why is the reputation of this sector such a crucial issue? The simple answer is that demand for the products is rising, and they play an increasingly important role in people’s later-life finances.

As higher life expectancy means more people living for longer in retirement – potentially for 20, 30 years or more – there is a growing need for ways of funding to supplement pensions and other sources. With house prices having risen almost constantly over the past couple of decades, many people’s wealth is tied up in their property. Equity release products are a way of accessing those assets, especially in situations where downsizing isn’t a feasible option.

Where does its negative reputation come from?

The products sold under the equity release umbrella are home reversion plans and lifetime mortgages. The most common form is the latter, through which homeowners aged 55 and over can take out a loan secured against their home, with the loan and interest typically repaid with the proceeds of the eventual sale. Read our guides for more on what equity release plans are and how they work.

Equity release has been dogged by reputational issues since unregulated home reversion products were sold in the 1980s and 1990s. Some of these sales involved unethical practices and led to people losing their homes and/or saddled with huge debts.

Many of the plans sold then bore little resemblance to the products on the market now. For instance, in the late 1980s they included ‘home income’ plans, where the customer would mortgage their home and invest the money in a high-yield bond. The idea was that the return from the bond would cover the interest on their loan and provide them with some additional income on top. But the plans – later banned – went badly wrong when interest rates jumped, house prices fell, and the stock market tumbled.

The shared appreciation mortgages sold in the late 1990s by banks including Barclays and Bank of Scotland also left many borrowers with huge debts. These gave the borrower a 0% interest rate, but involved the lender taking a percentage of the value of the property on its eventual sale.

In reality, this meant the lender taking back not just the amount borrowed but also 75% of the increase in the value of the property. The sharp increase in house prices since the plans were sold has dramatically increased the amount that borrowers have to repay, leaving them effectively trapped in their home. While the plans were only sold for a short period, some people are still becoming aware of the debts left behind by family members who took them out^[1].

While the various scandals remain fresh in the memory, they also led to the regulation of the sector. The creation of the Equity Release Council laid the foundation of an industry with more consumer protection and greater transparency.

The case against equity release

Some bad news headlines have continued even after those changes, and there’s a reason why many people still ask if equity release is safe. This is partly because some of the products sold two or more decades ago still have very high interest rates and punishing early repayment charges.

The effect of the interest ‘rolling up’ has left some people with equity release loans that have doubled in size over time. A more specific example is the conditions attached to some older home reversion plans, which required surviving tenants to move out within a month of the borrower’s death.

There have also been numerous instances of consumers being sold plans without understanding the terms or having them clearly explained to them – the problem being the quality of the advice rather than the product itself. The Financial Conduct Authority (FCA) has on several occasions warned of poor advice that has led to consumers suffering serious financial harms.

Even in late 2023, an FCA review of the main firms selling lifetime mortgages identified a number of cases in which the advice given didn’t meet the expected standards^[2]. It highlighted situations where it felt that the customer’s individual circumstances hadn’t been sufficiently considered, and where the advice given didn’t cover all the possible alternatives.

The case for equity release

One challenge facing the equity release sector is that it typically makes the headlines only when things have gone wrong. But when the product is appropriate and the advice is suitable, equity release can be of enormous benefit to individuals and their families.

The FCA says that when “sold correctly”, equity release allows people to repay their existing mortgage; carry out home improvements and essential household repairs and adaptations; consolidate burdensome debts; and reduce their working hours or fund earlier retirement, among other benefits^[3]. For some people it enables them to stay in their own home rather than have to downsize.

The chief appeal of the plans is that by providing a way to unlock some of the cash tied up in a property, they present a solution to a problem facing a growing number of people. An extended period of house price inflation means a large proportion of the wealth of older generations is concentrated in property.

Equity release gives them access to the money they need now, rather than leaving it locked away even when other assets and income sources have dried up. At the same time, people are living for longer in retirement and need other sources of income and capital in order to maintain their lifestyle or simply cover their costs.

Our article on the pros and cons of equity release goes into more depth.

What’s changed?

Some of the reputational damage caused by the historical issues has stuck, and many people remain reluctant to engage with the sector. The sector has evolved in recent years, however, partly in response to the problems that have occurred. We mentioned earlier that measures put in place have helped strengthen consumer protection in equity release and address some of the difficulties that arose.

A good example of this is the guidelines introduced by the Equity Release Council (ERC). This is the trade body that providers can choose to join as members and offer products that comply with their standards. These guidelines include the ‘no negative equity’ guarantee on lifetime mortgages, which means that people will never owe more to their equity release provider than their property is worth.

The guarantee provides valuable peace of mind by preventing someone from taking out a lifetime mortgage only to eventually find their debt is worth more than the property.

Other ERC guidelines that members' products may follow include a cap on interest rates and the right to live in your property for life or until you need to move into care. Read our article on what the ERC does for more. Consumer protection has also been bolstered by regulation, and those selling equity release products or advising on them must be authorised by the FCA.

Meanwhile, increased demand has encouraged providers to gradually evolve product propositions, providing more competition, choice, and flexibility than was once the case. These days, the most popular form of lifetime mortgage is a drawdown arrangement, where borrowers can take small amounts of equity at a time.

Other developments include the ability to voluntarily repay part of the loan during the term (often up to 10% each year), reducing the loan amount and interest owed. The latter can now be done without penalty, under an ERC safeguard implemented in 2022 (although this only applies to lifetime mortgages taken out after March of that year).

Some products also come with an inheritance protection guarantee. This allows equity release customers to ringfence a portion of the value of their home so they can be sure that their beneficiaries receive it once they pass on. The downside is that it means less is available to you as equity to be released, while some providers will charge extra for this feature. Our article on the inheritance protection guarantee explains more.

What about financial advice?

Financial advice is required when using equity release. Make sure you go to a professional, qualified financial adviser, as equity release products are complex and often targeted at people who might be in difficult circumstances.

The Consumer Duty regulation that took effect in 2023 requires advisers to help customers make good decisions by explaining the product in a way they can understand, and to ensure it meets their needs and works in a way the customer expects. Using an adviser holding membership of the ERC can provide additional peace of mind.

You will also need legal advice should you go through with it. See our article for more on the equity release process.

So, is equity release worth it?

It’s understandable that some may struggle to trust equity release, given the chequered history of the products. The effects of shared appreciation mortgages in particular are fresh in the memory. But consumers can now approach equity release with much more confidence that it will work for them.

There are still downsides to equity release, as with any product. It reduces the amount of equity in the property left to any beneficiaries after death. And while interest rates are becoming more competitive, the effect of compounding means the amount owed can quickly mount up.

If those using equity release also don’t consult with family members on their plans, there can be difficulties further down the line. So, it’s not suitable for everyone, hence advice being so important, as well as consideration of alternatives.

But the products responsible for the scandals of the 1980s and 1990s have long since disappeared or been banned. And while there remains room for improvement in the plans currently available, the market continues to evolve in response to changing needs, tighter controls, and closer regulation.

Demand for the products will only continue to grow. If you’re 55 or over and need to access the money tied up in your property, equity release is an option to consider.

Sources

^[1] https://www.clarkewillmott.com/news/settlement-reached-in-shared-appreciation-mortgage-claim(website opens in a new tab)
^[2] https://www.fca.org.uk/news/press-releases/review-later-life-mortgages-finds-poor-advice-and-misleading-promotions(website opens in a new tab)
^[3] https://www.fca.org.uk/publications/multi-firm-reviews/equity-release-sales-and-advice-process-key-findings(website opens in a new tab)