Equity release has become an increasingly popular option for homeowners over the age of 55 who are looking to access the wealth tied up in their property, without the need to move. Whether it's for supplementing retirement income, funding home improvements, or helping family members, releasing equity can be a significant financial planning tool.
However, like any form of mortgage it's essential to understand the potential risks involved and, more importantly, how those risks are reduced by industry regulation, financial advice, and smart use of the right product features. Additionally, we’ll highlight how to mitigate the risks yourself, by the use of the many flexible features that are now incorporated into equity release plans – the most common of which is the lifetime mortgage.
In this article, we’ll take a deep dive into how equity release works, the regulatory safeguards in place, and how homeowners can help protect their estate, especially by choosing to make some form of payments back to the equity release provider, which could be via flexible voluntary payments, committed monthly interest-serviced payments like the Just For You – J1 Green Plan and the more recent innovation of the Interest Rewards plans from the likes of More2Life and Standard Life.
How Regulation Helps Protect Homeowners
One of the key reasons equity release has become safer over the years is due to strong regulation. In the UK, the Financial Conduct Authority (FCA) oversees all equity release advice and sales. This means any adviser or provider you deal that provides equity release services must meet strict standards around competence, ethics, and transparency.
Another important entity within the industry is the Equity Release Council (ERC). This voluntary body sets out additional product standards and consumer protections beyond the minimum required by the FCA. Perhaps the most reassuring is the No Negative Equity Guarantee (NNEG), which ensures that you or your estate will never owe more than your home is worth when it is sold — even if house prices fall and you live to a ripe old age!
The ERC also requires that homeowners receive independent legal advice before committing to an equity release plan. This ensures that you fully understand the legal and financial implications, and that the decision is being made freely and without pressure or potential coercion. This multi-layered approach with the adviser providing their advice on product suitability, and then during the application process the face-to-face meeting with a legal representative provides valuable protection.
Understanding the Risks: Interest Roll-Up and Estate Erosion
The main risk with equity release, particularly lifetime mortgages is that the interest on the loan is typically compounded as there are no mandatory payments. If you choose not to make any repayments, the interest builds up over time and is added to the original loan amount. This is known as "interest roll-up," and over the course of 10, 15 or 20 years, it can significantly reduce the equity left in your property.
The equity remaining will ultimately depend on the future value of the property, which historically has escalated over many years of homeownership. Therefore, with any lifetime mortgage, should the property increase in value over the duration of the mortgage, this increase is 100% retained by the homeowner. The plan ends on death or long-term care of the last surviving party, where the outstanding loan is usually repaid from the sale proceeds.
Therefore, roll-up of interest not only impacts your future financial flexibility, but it can also reduce the inheritance you leave behind. Fortunately, today’s flexible lifetime mortgage products offer solutions that can mitigate this risk considerably, hence you should be aware of what features are available to you. Only by employing the services of an independent equity release adviser can you get access to products from across the whole market, which is important to find the best deal available for your circumstances and requirements.
Voluntary Payments and Interest Servicing: Game-Changers
One of the biggest innovations in the lifetime mortgage market was the introduction of voluntary payments. This allows you to make payments to the lender up to a prescribed limit which is usually 10% per annum of the original amount borrowed. The were a few early adopters of voluntary payments including Aviva; however the Equity Release Council has now ensured that all lifetime mortgages have standardised this feature in 2022.
Voluntary payments can be made on an ad-hoc basis, subject to a minimum payment, or even by a monthly standing order with all but a couple of lenders – details of which your equity release adviser should be able to point out to you. Indeed, the 10%pa voluntary payment rule has been challenged by certain lenders by seeing the opportunity to further increase this 10% limit. Some lifetime mortgage lenders have stretched their limit to 11%, 12%, 20% and even 40% voluntary payments – subject to product availability. This would mean more of the interest, even capital can be repaid with no proof of income, or early repayment charges – effectively allowing full management of the future balance and even repaying it over time.
Please contact us on 0800 802 1051 for further details on lenders criteria in this area.
In 2025, many lenders including Just, More2Life, and Standard Life have started to offer more flexible repayment options called Interest Servicing plans. These allow you to make a more committed regular payments towards the interest on your lifetime mortgage, and by doing so the lender will offer a reduction to the standard interest rate. Effectively, the greater the percentage of interest that’s paid, the greater the reduction to the products standard interest rate is offered by the lender.
The main difference here between a residential mortgage and interest servicing plans is the level of ‘commitment’. We all know a traditional mortgage has mandatory payments and potential repossession could arise if they are not maintained. This is not the case with a lifetime mortgage. The interest servicing payments, although monthly in nature, can be stopped at any time and the plan will revert back to roll-up. By doing so, lenders may remove the interest rate discount originally provided, so again always check the finer details with your equity release adviser. The longer these payments can be made, the greater the reduction to the final balance they will make.
Paying interest regularly means that your loan doesn’t grow as quickly, or even at all. Depending on how much you pay, even relatively modest monthly payments can dramatically reduce the impact of compound interest, preserving more of your estate for your beneficiaries. During our initial client discussions, many Equity Release Supermarket customers say they do not want to make any repayments. However demonstrating just what £50pm or £100pm can make to their final balance can make for a different conversation!
Real-Life Example: The Just For You – J1 Green Plan
The Just For You - Lifetime Mortgage from Just is a flexible equity release plan that lets you pay anywhere between 25.01% and 100% of the interest due each month. By doing so, you can secure a lower interest rate than if you chose not to make any payments at all.
Not only will that, but another way of getting even more reduction on your interest rate is by taking advantage of Just’s ‘Green’ product credentials. If you have an EPC certificate on your property which is graded A,B or C, you may be entitled to a further 0.1% MER off the interest rate. Coupling these two rate reduction features can therefore save a fortune over the life of the mortgage.
Let’s have a look at how these rate reduction discounts* work in practice: -
| Plan | Rate (MER) |
|---|---|
| J1 Plan (standard) | 6.45% MER |
| J1 Green | 6.35% MER (inc 0.1% EPC discount) |
| J1 IO | 6.25% MER (interest servicing) |
| J1 Green IO | 6.15% MER (inc 0.1% EPC discount & interest servicing) |
This is a great summary showing how 0.3% MER could be shaved off the standard interest rate assuming 25%+ of the interest charged was paid, and the property had a qualifying A,B or C EPC certificate.
Based on a release of £100,000, the difference between the J1 Standard plan at 6.45% MER and the Just J1 Green IO plan at 6.15% MER (assuming no payments for comparison) would be £11,489 over 15 years.
However, the J1 Green IO plan must have at least 25.01% of the interest paid to qualify for this lower rate. We’ll assume below that based on a £100,000 loan this would require a minimum payment of £135pm to qualify.
Let’s compare the final balances based on a loan of £100,000 over 15 years:
J1 Standard plan (6.45% MER, no repayments): £262,454.91
J1 Green IO plan (6.15% MER, £135pm repayments): £211,198.76
Savings in Final Balance: £51,256.15
So, repaying £135pm on the Green J1 IO plan at 6.15% MER reduces the balance by £51,256.15, compared to letting a 6.45% MER loan compound untouched for 15 years.
These figures are illustrative, but they highlight an important point: paying just £135 per month can save over £51,000 during the life of the loan. More extreme, but should the full 100% of the interest charged be paid (£512.50pm), the balance would remain at £100,000 and even more substantial gains for the estate be made over the 15 years.
The impact of servicing interest is clearly evident when you think about the legacy you want to leave. By paying off even a portion of the interest, you help maintain the value of your estate — meaning more of your property’s value is preserved for your loved ones.
You can compare equity release deals including the J1 Green Plan on our website.
The Role of Solicitors: An Extra Layer of Protection
All equity release customers must receive independent legal advice before they complete their application process. This isn't just a box-ticking exercise, it's a vital part of the equity release process that ensures you fully understand the commitment you're making.
Solicitors will:
- Confirm your identity and capacity
- Ensure there’s no undue influence or pressure
- Explain the legal terms of your plan
They also liaise with your adviser, lender and the lenders solicitor to make sure everything is completed correctly and on time. It’s another safeguard that adds peace of mind.
Why Whole-of-Market Advice Matters
When considering equity release, it’s essential to work with an adviser who has access to the whole later life lending market. This isn’t just restricted to lifetime mortgages. To provide impartial and independent advice all four later life lending products should be discussed and researched. This also therefore includes – Home Reversion plans, Retirement Interest Only Mortgage (RIOs) and Term Retirement Mortgages (Interest only and Capital & interest payments over a fixed term of years).
This ensures they’re not limited to just a few providers and products but can instead match you with the plan that best suits your financial goals, health, and property type and any future retirement plans. By selecting the right product at the best rate for your personal requirements again could save you and your estate £1000’s over the long term.
At Equity Release Supermarket, all our advisers are FCA authorised and provide whole-of-market advice. That means you’ll be able to compare products from all leading lenders, all product types and with access to exclusive deals that aren’t necessarily available directly to other advice firms.
Other Ways to Reduce Risk with Equity Release
Aside from making interest payments, there are other features and options that can help reduce the financial impact of equity release:
- Drawdown Lifetime Mortgages: These allow you to release funds in stages, rather than as a single lump sum. You only pay interest on the money you’ve actually withdrawn. Therefore, by not taking all the tax-free cash up front, rather than a smaller initial amount and leaving the rest in a cash reserve, you will potentially pay less interest over time.
- Inheritance Protection Guarantees: Some plans let you ring-fence a portion of your property’s value to guarantee an inheritance. Again, this is an estate saving feature as it will protect a percentage of the property value for your beneficiaries.
- Fixed Early Repayment Charges (ERCs): All lenders now provide plans that include clear, time-limited ERCs so you know upfront what it would cost to repay early. Previously, gilt based ERCs were the most common format, however with potential ERCs of up to 25% these have now been replaced.
- Health-Enhanced Plans: If you have certain health conditions, you may qualify for a larger loan based on the severity of your diagnosis. Effectively, the more sever the condition, the higher the potential release could be. Alternatively, if you are looking for a specific cash lump sum, any ill-health enhancement could reduce the interest rate based on your shorter life expectancy.
In Summary: Equity Release Can Be Safe and Sensible
When advised correctly, equity release can be a secure, flexible, and financially beneficial choice. The key is understanding the risks, particularly compound interest and previously illustrated - knowing how to manage them.
Thanks to regulation from the FCA, safeguards from the Equity Release Council, independent legal advice, and a range of flexible product features, today’s equity release market is a lot more manageable, plus more choice than it ever had previously.
By choosing products designed like the Just For You – J1 Green Plan and making voluntary interest payments, or monthly interest serviced payments, homeowners can dramatically reduce the cost of borrowing and preserve more of their property’s value for the future. Combine that with advice from a whole-of-market adviser, and you have a strong foundation for making a well-informed, considered decision.
*Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, ask for a personalised illustration.
*All rates are applicable on 16th April 2025 and may therefore be subject to change after this date.
