Higher borrowing costs and slower house price growth are increasing the impact of equity release loans on estates

A family has warned about the impact of lifetime mortgages after a loan taken out against a property left relatives with a fraction of the inheritance they had expected following the homeowner's death.

Richard Heaton said he was forced to slash the asking price of his late sister's home while facing increasing pressure from a lender seeking repayment of a lifetime mortgage.

The Grade II-listed cottage near the New Forest remained on the market for 18 months before eventually selling for £215,000 after the asking price was reduced by more than £100,000.

During that period, the lifetime mortgage provider repeatedly contacted Mr Heaton as the outstanding debt continued to grow.

Mr Heaton said: "They were starting to go into panic mode. At one point they were even talking about putting in a repossession order."

His sister originally borrowed £116,250 through a lifetime mortgage in 2018, but by December 2025, the amount owed had increased to £162,000 after interest was added to the loan.

Once the debt had been repaid, six family members shared less than £60,000 from the estate.

Lifetime mortgages are the most common form of equity release, allowing homeowners aged 55 and over to access money tied up in their property without having to move home.

According to the Equity Release Council, more than 950,000 people have taken out equity release products since 1991, borrowing around £50billion in total.

Research by think tank Fairer Finance suggests that by 2040 more than half of UK households could have used equity release products, unlocking around £23billion from residential property each year.

However, experts have warned that slower house price growth and higher borrowing costs are increasing the risk that borrowers will leave behind much smaller estates.

Sarah Coles, head of personal finance at AJ Bell, said: "Depending on how long you live after taking out the loan, when the debt is repaid there may be very little left over or the value in your home could be wiped out completely."

Between 2010 and 2021, house prices typically increased by between five and six per cent each year as historically low interest rates supported the property market.

During that period, rising property values often outpaced the interest building up on lifetime mortgages.

House prices have increased by 3.8 per cent since 2023, while the average time taken to sell a property has risen to a record 21.5 weeks, according to the Royal Institution of Chartered Surveyors.

Moneyfacts data shows the average lifetime mortgage interest rate is now 7.68 per cent, compared with rates as low as 3.5 per cent during the mid-2010s.

Unlike many standard mortgages, lifetime mortgage interest rates are linked to Government bond yields and remain fixed for the duration of the loan.

Ms Coles said: "Back in 2022 when house price growth hit double digits, the interest charges won't have bitten so hard. Now it isn't enough to make up for the growing debt."

She added: "The real cost comes over time as the interest mounts. The compounding is working against you."

An example provided by AJ Bell shows that someone borrowing £240,000 against a £400,000 property at a 60 per cent loan-to-value ratio could see the outstanding debt grow to around £450,000 after 10 years.

Unless the property's value increased by more than 12.5 per cent over that period, the proceeds from the sale would not be enough to cover the balance owed.

Lifetime mortgages usually become repayable when the borrower dies or moves into long-term care, meaning families are often required to sell the property to settle the outstanding debt.