Would you like to know how to turn £30,000 into £250,000 in one easy step? I can show you how.
Simply sign on the dotted line, receive a lump sum and sit back while the balance grows.
You’re wondering what the catch is. Ok, I’ll tell you. This isn’t a savings account or investment – it’s debt. And at some point in the future, either you or your loved ones will need to find a way to repay every single penny.
Done properly, equity release can be a vital financial tool to help people manage their money through retirement. Done badly, it can snowball into untold amounts of debt and wreak havoc on people’s lives.
Equity release, sometimes called a lifetime mortgage, is a sort of reverse mortgage where you borrow money against your home. The lender gives you a lump sum to use however you like and usually, no repayments are needed.
Instead, the interest is left to accrue and the debt is settled when the home is sold in the future, usually after you die or move into care.
Some 12,570 homeowners borrowed £564m through equity release in the first three months of 2026 alone. I wonder how much they will end up owing.
Asset rich and cash poor
The idea of equity release is not a bad one. It allows those who are “asset rich and cash poor” to tap into their biggest store of wealth: their home.
But many people underestimate just how quickly that debt can build. At an interest rate of 8 per cent, your debt will double about every nine years.
One Bank of Dave customer I spoke to has seen their equity release loan balloon from £50,000 to £150,000 in just 14 years.
Another has recently discovered that his mother, a widow in her eighties, owes £250,000. She only realised her husband had taken a £30,000 equity release plan to put their grandchildren through university after he died.
When I first heard these numbers, all I could think was that it reminded me of payday loans – an industry I helped instigate a crackdown on back in 2015, with the regulator eventually introducing tougher rules on lenders and a cap on the amount firms could charge their customers.
But equity release is regulated and these loans aren’t charging 5,000 per cent interest like some payday loan companies were. Instead, they are capitalising on the phenomenon that is compound interest.
This is the snowball effect that helps your savings and investments grow more quickly over time as you earn interest on the interest you’ve already earned.
But here’s the rub: the same effect works with debt and it can see the amount that people owe spiral out of control. It means the vulnerable pensioner whose husband released £30,000 in equity from their family home now owes 600 per cent more than he originally borrowed.
As Gen X approaches retirement, the problem is only going to get worse. Many people in this generation, born between 1965 and 1980, have built a decent amount of housing wealth but have little in the way of pension savings to fund their retirement. Equity release will seem like an obvious answer.
How your debt can double
There are plenty of reasons that people choose equity release: for home improvements, to gift to children and grandchildren, or simply to provide some cash to live off so they aren’t forced to sell the home they have lived in for decades.
But what people don’t see upfront is how the interest racks up. In the 90s, a “negative equity guarantee” was introduced so that the size of the debt can’t exceed the value of the property. Some deals have a cap on the amount the debt can grow to, often about 60 per cent of the value of the home.
But that doesn’t stop some people from getting caught out. Borrowers routinely underestimate their life expectancy, meaning the debt snowballs longer and larger than they ever anticipated. Families often don’t realise the loan exists until their parents have died and they are dealing with the estate.
Some find they have no option but to sell the house they grew up in, and that the inheritance they had hoped to receive is gone.
You also might not realise that taking equity can affect other areas of your finances. Coming into a lump sum could reduce the benefits you’re entitled to, or make you ineligible altogether. If you later need help with care costs, any money you’ve released is taken into account in the means test, which could reduce the support you receive.
You might argue that these people should downsize instead of resorting to a loan. But why should they? They’ve worked hard to own their home and may not want to move at this time of life. We should be looking after people who have done all the right things, but instead, it feels as though the vulnerable are being targeted.
What if there is no alternative? Always seek independent advice – don’t just speak to the sales people at the equity release company; they’re only going to tell you one thing. And take the absolute minimum, because this is some of the most expensive borrowing you will ever do.
For a lender, equity release is a very safe bet. To me, it feels morally wrong and there is no need for a lender to be charging such high rates of interest.
There is a huge opportunity for banks that could lend responsibly and ethically and still make a profit.
Because borrowing 10 or 20 per cent of the value of your home and paying some interest and some fees is fine – but something has gone wrong when the debt can balloon by 600 per cent and suddenly your house, and your children’s inheritance, is gone.
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