Turning your own home into a cash machine without having to sell it can be a real boon for older homeowners – but equity release can also be an “expensive mistake” when it is used for the wrong reasons.

Releasing cash can offer a lifeline for those who need to pay off existing mortgages that have matured, or to help family members who are trying to get on the housing ladder themselves. 

Others choose it to improve their homes, pay for holidays or simply to generate extra income to better enjoy retirement. 

But it can prove to be expensive in the long run and many homeowners who have taken out equity release plans have lived to regret it. Should you take the plunge? Telegraph Money spoke to two equity release users to find out what went right – and what went wrong.

‘Equity release saved my £1.1m home’

Robert Bicknell, 64, a singing teacher, said equity release was the key to saving his beloved £1.1m Brixton home. 

Mr Bicknell has worked from home all his life, using his large music room for the last 25 years but feared he would have to sell up when his £280,000 interest-only mortgage came to an end in September 2021. 

“I looked around for three years to try to buy somewhere else but it is very hard to find something suitable to work in London’s travel zone 2. A new music room would cost me £50,000 to set up,” he said. The private singing teacher has coached stars performing in the West End, rock bands and major RnB names. 

He said: “I’m in my prime, I can still work and it was very important for me to stay here. I decided it was a good time to take out a lifetime mortgage while interest rates were low.”

Mr Bicknell secured an equity release deal with a 4.09pc interest rate via provider Legal and General. He said he had been told he could move home and carry over the lifetime mortgage if he chose to move in future.

“I have no regrets, it’s been brilliant. Why move and make new neighbours and change my place of work when I can stay,” he said.

Claire Singleton, of Legal and General, said she expected that using your home to fund retirement, in particular, would become more commonplace. 

The ideal candidate for equity release is someone who is older than the minimum age of 55, and has a definite need to borrow that cannot be addressed in any other way, said Andy Wilson, an equity release specialist at Andy Wilson Financial Services, an advice firm. 

“They will take only what is likely to be spent or used quickly, and may have a drawdown reserve for any possible further borrowing needs. If they have sufficient income, they will be best advised to consider making some payment towards the interest charged to keep the debt in check,” he added.

‘Equity release was a terrible mistake’

Lifetime mortgages may be the answer for some but others have found themselves trapped under the weight of spiralling debt. 

Craig Bannister*, 88, from Stockport, who is terminally ill, said he deeply regretted taking out an equity release and that it had become a “distressing burden” on him and his wife, who is suffering from dementia.

The octogenarian released £50,000 from his £350,000 house 20 years ago to fund home improvements and a cruise upon retirement, intending to repay the loan on moving house a few years later. However, the move never materialised and the amount owed has since ballooned to £260,000, thanks to a compound interest rate of 6.69pc. 

“Neither of us can contemplate moving house in our present frail state of health. In the unlikely event of my living much longer, the remaining equity will be nil,” he said.

“There should be safeguards in place to cap these loans when they reach wildly unrealistic levels – or at least scope for remortgaging at a lower rate.”

The compounded way in which interest is charged on equity release loans means that debts mount much more quickly than on a traditional mortgage. Higher interest rates can have a devastating impact, as the owner’s stake in the property is whittled away faster. 

Lifetime mortgages arranged years ago were expensive, unregulated and caused many borrowers regret, but today’s plans have much more protections in place, Mr Wilson said.

The solution to rising debt is to pay off some or all of the monthly interest charged, according to the adviser. This prevents the debt from rising, or at least allows it to rise more slowly, preserving more of the property value.

However, repaying all the released equity can incur huge penalties, as it is designed as a “lifetime loan”.

Older homeowners who want access to the money in their property to give their family members an early inheritance can use equity release but the long-term cost of doing so will be higher, Mr Wilson warned. 

“Releasing large sums as an inheritance tax mitigation exercise can be flawed, with the compounded interest potentially exceeding the eventual tax liability,” he said. 

Lifetime mortgages can also create problems in cases where one person in a couple is the sole owner of the property. In this situation, if the owner dies, the non-borrowing partner will have no right to stay in the home. 

*Name has been changed