With life expectancy increasing, many elderly people find themselves struggling to pay for the care they need. In these circumstances, the temptation to take out an ‘equity release’ loan is strong, but such a course should only ever be considered with the benefit of quality professional advice.

The difficulties faced by many older people are compounded by years of poor investment returns on most private pensions. When faced with the cost of care, or a simple inability to meet the rising costs of living, taking a loan against one’s freehold can seem an attractive proposition.

A recent newspaper story illustrates the potential pitfalls clearly. It involved a couple from Wales who borrowed £43,000 on equity release from insurer Aviva in 2003. When poor health persuaded them that they should sell their house to finance a joint move into sheltered accommodation, they found that the amount to be repaid had more than tripled – to £135,000. This included a £16,000 repayment fee because only one of them was in need of assistance. Had both of them needed to go into care, there would not have been a surcharge.

Equity release loans often feature both high rates of interest and considerable traps in the small print, which in this case led to an additional charge for the couple wishing to spend their final years together, rather than living apart.