UNDERSTANDING EQUITY RELEASE

Some cash-strapped retired people are turning to equity release to top up their income or help family members get on the housing ladder. It might seem like an easy way to free up some money, but many don’t realise that compound interest (interest on top of interest) means the debt can mount up faster than you expect.

For example, if you borrowed £20,000 and the interest compounded at 5 per cent a year, in 15 years that debt would grow to about £41,579 – more than double the original amount. At slightly higher rates, it grows even faster – at 6.5 per cent it would be £51,437 and at 7 per cent it would be over £55,000.

There are other things to consider too such as high arrangement fees, early repayment charges and it can affect means-tested state benefits.

Equity release is a big decision and a complex financial product, so think carefully and always seek independent financial and legal advice first.

Age UK has a useful guide at ageuk.org.uk/information-advice/money-legal/income-tax/equity-release/