Equity release has evolved significantly over the past two decades. What was once a niche product, often associated with predatory lending practices and negative headlines, has now become a mainstream financial solution for homeowners over 55. Today’s lifetime mortgages are regulated by the FCA and safeguarded by the Equity Release Council, making them safer than ever.

Yet despite the improvements, equity release is not risk-free. Borrowers must understand the potential downsides before committing, from the long-term impact on inheritance to the way interest compounds. This doesn’t mean equity release is unsuitable, far from it. But it does mean that transparency and advice are essential.

This article explores the risks of equity release in 2025, how they are managed, and what every borrower needs to consider before making a decision.

The Legacy of Past Problems

Equity release still carries a stigma. In the 1980s and 1990s, poorly structured products left some homeowners in negative equity or facing unexpected repayment demands. These problems arose in part because early equity release plans lacked the protections that are standard today.

The result is that many people still associate equity release with financial hardship, even though modern plans are radically different. In 2025, every borrower benefits from independent legal advice, a no-negative-equity guarantee, and FCA oversight. Understanding this context is important, but so too is recognising that risks remain.

Interest Roll-Up and the Power of Compounding

The most widely discussed risk is interest roll-up. With most lifetime mortgages, borrowers do not make monthly repayments. Instead, interest is added to the loan balance, compounding over time. A relatively modest loan today can grow into a much larger debt in twenty or thirty years.

For example, a £100,000 release at a typical fixed rate may double or more over two decades if left untouched. While modern products often allow voluntary repayments to control the balance, not all borrowers choose to use this feature. For families expecting to inherit, the impact can be substantial.

This is why advisers often encourage borrowers to think carefully about how much equity they release and whether they wish to make optional payments along the way.

The Impact on Inheritance

A natural consequence of equity release is a reduced estate for beneficiaries. The more equity is unlocked, and the longer interest accrues — the less remains for children and grandchildren. For some families, this is acceptable, especially if equity release funds are used to provide support earlier in life, such as gifting a deposit. For others, it is a serious drawback.

Modern planning can soften the impact. Some products allow partial protection of property value, ringfencing a percentage of the estate for inheritance. Others combine equity release with strategies such as whole of life insurance, which can offset inheritance tax or replenish estate value. But the fundamental trade-off remains: equity release benefits the homeowner now, at the expense of estate value later.

Reduced Flexibility

Another risk lies in the reduced financial flexibility that comes with securing debt against the home. Once a lifetime mortgage is in place, remortgaging or selling the property can be more complicated. Early repayment charges (ERCs) may apply if the borrower wants to exit the plan early, and while many products have more lenient ERC structures in 2025, they still need to be considered.

This is why advisers explore alternatives such as downsizing or retirement interest-only mortgages with clients before recommending equity release. For some, those routes may provide the needed funds without the same long-term commitments.

Impact on Benefits

Equity release can also affect entitlement to means-tested benefits. If funds are released and left as cash savings, they may push the homeowner over the threshold for benefits such as Pension Credit or Council Tax Reduction. Borrowers need to understand how releasing money interacts with their overall financial picture.

Advisers routinely check for this, ensuring that clients do not inadvertently compromise valuable state support. It is one more reason why regulated advice is mandatory for every equity release transaction.

Property Value Risks

Equity release is secured against the home, and the eventual repayment depends on property value at the time of sale. While the no-negative-equity guarantee ensures that borrowers will never owe more than the property is worth, falling values can reduce the equity left in the estate.

This risk is not unique to equity release, it affects all forms of borrowing against property, but it remains a consideration. Homeowners should ensure they are comfortable with how market fluctuations might impact the future.

Safeguards in 2025

The good news is that today’s safeguards address many of the problems that gave equity release a bad reputation in the past. Every borrower now benefits from:

• The no-negative-equity guarantee, ensuring families will never owe more than the home’s eventual sale value.

• Mandatory independent legal advice, so borrowers fully understand the implications.

• Fixed interest rates, providing certainty over costs.

• Voluntary repayment features, giving borrowers the option to manage the loan balance.

These protections mean that while risks exist, they are transparent, manageable, and backed by regulatory oversight.

Conclusion



Equity release in 2025 is far safer than in the past, but it is not risk-free. Borrowers must understand how interest roll-up works, how estate value is affected, and how products limit flexibility. They must also weigh the impact on benefits and consider how property value changes might influence outcomes.

The crucial difference today is that no one enters equity release alone. With FCA regulation, Equity Release Council safeguards, and mandatory professional advice, borrowers are protected and guided throughout the process. For those who fully understand the risks, and for whom equity release is the right fit, lifetime mortgages can still provide security, flexibility, and peace of mind.

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