Equity Release Will Cost You £186,000 in Interest — Downsizing Frees the Same Cash for Nothing

Equity release lenders quote rates around 5.97% to 6.28% — roughly double the current Bank of England base rate of 3.75%. Unlike a standard mortgage where you make monthly payments, equity release interest compounds on interest, year after year, silently consuming the value of your home.

Here's what that actually means for the average release of £123,174 at 6.1%:

After 10 years, you owe £223,000 on a £123,000 loan. After 20 years, it's over £400,000. After 25 years — well within the lifespan of many plans — the debt has quadrupled to £542,531. Every Equity Release Council member guarantees you'll never owe more than your home's value (the "no negative equity guarantee"). But that guarantee protects the lender too: they've structured the product so the entire house value flows to them over time.

A downsizer releasing the same £123,174 through selling and buying cheaper pays zero interest. Zero. The comparison isn't even close. If you're weighing up mortgage options more broadly, our mortgages hub covers the current landscape.

The equity release industry loves to inflate <a href="/posts/downsizing-costs-14000-and-your-sanity-equity-release-lets-you-stay-home-and">downsizing</a> costs. Yes, moving house isn't free. But let's do the actual maths on a realistic downsize from a £400,000 house to a £250,000 property.

Selling costs on £400,000:

• Estate agent fees (1.42% + VAT): £6,816
• Conveyancing: £1,500
• EPC certificate: £100

Buying costs on £250,000:

• <a href="/posts/stamp-duty-calculator-how-much-sdlt-youll-pay-on-your-uk-property-purchase">Stamp duty</a>: £2,500 (2% on the portion between £125,001 and £250,000)
• Conveyancing: £1,200
• Survey: £500
• Removal costs: £1,500

Total transaction costs: approximately £14,116.

That's a one-off cost. You release £150,000 minus £14,116 = £135,884 in clean, debt-free cash. An equity release plan giving you the same £135,884 would compound to £340,000 of debt over 15 years. You'd pay £204,000 in interest for the privilege of staying in a house with spare bedrooms you don't use. Use our stamp duty calculator to run the numbers on your specific downsize.

Nobody wants to leave the home where they raised their children. I understand that. The equity release industry understands it too, which is why their entire marketing strategy is built around it. "Stay in the home you love" is a compelling pitch. It's also a pitch that costs six figures.

Consider what £135,884 of debt-free cash actually means for a retired couple. Invested in a simple portfolio yielding 4% annually, that's £5,435 a year in income — every year, indefinitely, while preserving the capital for inheritance. Or it's a decade of supplementing the state pension by £1,132 a month. For context on pension income planning, see our analysis of pension annuities versus drawdown.

Equity release gives you the same cash but with a growing debt that eats into — and eventually consumes — your children's inheritance. The FCA is conducting a later-life lending market study in 2026 precisely because regulators are concerned about whether consumers truly understand what they're signing up for.

Downsizing also offers something equity release never can: a fresh start. A smaller property means lower council tax, lower energy bills, lower maintenance costs. In a year when the Ofgem price cap is rising again and the cost of heating a four-bedroom house keeps climbing, that ongoing saving matters. Our savings hub covers how to make the most of any cash you release.

I'm not saying equity release is always wrong. If you're over 80 with a terminal illness and no heirs, a lifetime mortgage at 6% on a short time horizon is a rational choice. If you need £30,000 for essential home adaptations and the compound interest over your remaining years is manageable, that's defensible. For full details on how these products work, read our equity release guide.

But for the median case — a 67-year-old couple sitting on a £400,000 house with unused bedrooms, wanting to supplement retirement income — downsizing is objectively superior. Lower cost, no debt, ongoing savings on bills, and a clean inheritance for the next generation.

The equity release market hit £2.57 billion in 2025. Eighty percent of advisers expect even more lending in 2026. That should worry anyone who remembers how the financial services industry promotes products that are profitable for providers, not necessarily optimal for consumers. The personal savings allowance means basic-rate taxpayers can earn £1,000 in interest tax-free, making downsizing proceeds even more efficient. For broader retirement planning, see our pensions hub.

This article is for informational purposes only and does not constitute financial advice. Equity release and property transactions have significant financial implications. You should seek independent financial advice before making any decisions about your home or retirement planning.