Equity Release Explained: What You Need to Know

Equity release allows eligible homeowners to access some of the money tied up in their property without necessarily having to move home. However, it is a significant financial commitment and can affect the value of your estate, your entitlement to means-tested benefits and your future financial options.

There are different types of equity release, with different costs and risks, so it’s important to understand how they work and consider the alternatives before making a decision.

What is equity release?

Equity release is a way for older homeowners to access some of the money tied up in their home while continuing to live there.

Depending on the type of plan, money may be available as a lump sum, smaller amounts over time through a drawdown facility, or a combination of the two.

People may consider equity release for a number of reasons. Such as supplementing their income in retirement, making home improvements, helping family members financially or repaying existing borrowing.

However, releasing equity from your home can have significant long-term financial consequences. So it is important to consider the costs, risks and alternative options.

If you are considering equity release to repay debts, it is important to consider other options first. Using a lifetime mortgage could mean replacing unsecured borrowing with borrowing secured against your home. While a home reversion plan involves selling all or part of your home. You may wish to seek independent debt advice before proceeding.

How does equity release work?

Equity is the difference between the current value of your home and any borrowing secured against it.

For example, if your home is worth £400,000 and you have a £50,000 mortgage outstanding, you have £350,000 of equity in the property.

If you take out a lifetime mortgage, any existing mortgage or other borrowing secured against your home will usually need to be repaid when the lifetime mortgage starts. This may be repaid using some of the money released, or from other funds you have available.

Eligibility requirements for a home reversion plan differ between providers. Some require you to own your home outright or for any existing mortgage to be repaid as part of the arrangement.

The amount you can release will depend on factors including your age, the value and condition of your property, the product you choose and the provider’s eligibility criteria.

Equity release explained

There are two main types of equity release. 

• Lifetime mortgage
• Home reversion plan

They work in very different ways.

With a lifetime mortgage, you borrow money secured against your home while retaining ownership of the property.

With a home reversion plan, you sell all or part of your home to a home reversion provider. It is not a mortgage or loan.

How does a lifetime mortgage work?

A lifetime mortgage is a type of loan secured against your home.

You continue to own your property and, depending on the plan, can receive money as a lump sum, through drawdown, or a combination of the two.

The amount available depends on the lender’s criteria, including your age and the value of your property. Some providers may also take health and lifestyle factors into account.

Depending on the product, you may not have to make regular repayments. If interest is not paid as it arises, it is normally added to the amount you owe. This is known as rolled-up or compound interest.

Because interest can then be charged on both the original amount borrowed and the interest already added, the amount owed can increase significantly over time.

Some lifetime mortgages also allow you to make voluntary interest or capital repayments, which can reduce the effect of interest rolling up. The features, limits and any charges will depend on the individual product.

The loan and any interest and charges are normally repaid when the plan ends. Usually when the last borrower dies, moves permanently into long-term care or the property is sold.

What interest rate will I pay on a lifetime mortgage?

Interest rates vary between providers and products and can change over time. So there is no single rate that applies to lifetime mortgages.

The rate you are offered will depend on the product and your circumstances. Some lifetime mortgages have a fixed rate, while others may have a variable rate subject to the product’s terms.

Rather than focusing only on the headline interest rate, it is important to understand how the interest will be charged. Whether it will be added to the loan and how the amount owed could increase over time.

Your personalised illustration should show the rate, fees and an example of how the amount owed could develop.

What is a no negative equity guarantee?

If interest continues to roll up over many years, the amount owed on a lifetime mortgage can increase substantially.

Some lifetime mortgages include a no negative equity guarantee. This means that, provided the conditions of the guarantee are met, the amount that has to be repaid from the sale of the property will not exceed the value of the property after relevant sale costs.

You should check whether a particular plan includes this protection and understand its terms before proceeding.

How does a home reversion plan work?

A home reversion plan works differently from a lifetime mortgage because you are not borrowing money.

Instead, you sell all or part of your home to a home reversion provider in return for a lump sum or, depending on the plan, payments over time.

You can usually continue living in the property under the terms of the plan, typically under a lifetime lease or tenancy. The terms will set out your rights and responsibilities, including whether any rent is payable and your responsibilities for maintaining the property.

The amount you receive for the share you sell is generally less than its proportionate open-market value. This reflects the fact that the provider may have to wait many years before it can sell the property.

For example, if you sell 30% of your property to a home reversion provider, you will no longer own that 30%. If the property subsequently increases in value, the provider will normally be entitled to its agreed share of the eventual sale proceeds.

When the property is eventually sold, you or your estate will receive the proceeds relating to the proportion of the home that you still own, subject to the terms of the plan and any applicable costs.

Unlike a lifetime mortgage, there is normally no interest accumulating on a loan. Because a home reversion plan is a sale of an interest in your property rather than borrowing secured against it.

Home reversion plans are less common than lifetime mortgages.

Who is eligible for equity release?

Eligibility depends on the provider and the type of equity release product.

Lifetime mortgage providers set their own minimum age requirements. These are commonly around age 50 or 55. However, they vary between providers.

Home reversion plans generally have higher minimum age requirements. Some providers require applicants to be over 60 or 65.

You will also normally need sufficient equity in your property. If you have an outstanding mortgage or other borrowing secured against your home. This will usually have to be repaid when the equity release arrangement is put in place.

Your property will also need to meet the provider’s requirements, which can include its value, location, construction and condition.

The downsides of equity release

Equity release can have significant long-term consequences and will not be suitable for everyone.

Things to consider include:

• Reduced inheritance: A lifetime mortgage can reduce the amount left in your estate. Because the loan, interest and charges usually have to be repaid from the property. With a home reversion plan, you no longer own the proportion of the property that you have sold.
• Interest can build up: With a lifetime mortgage where interest is rolled up, compound interest can cause the amount owed to increase substantially over time.
• Tax, benefits and care funding: Equity release could affect your tax position, entitlement to means-tested benefits or eligibility for local authority support. The effect will depend on your circumstances, so you may need specialist advice.
• Looking after your property: Your plan may place conditions on you while you continue living in the property, such as keeping it adequately insured and maintained. You should understand these obligations before proceeding.
• Early repayment charges: If you repay a lifetime mortgage early, you may have to pay an early repayment charge. The amount and circumstances in which this applies will depend on the plan.
• Moving home: Some plans can be transferred to another suitable property. But this will depend on the provider’s criteria. Moving to a property that does not meet those criteria could mean having to repay the plan.
• Future borrowing: Taking equity from your home could reduce the amount available to borrow or release later.
• Other people living in the property: Equity release can have implications for a partner, relative or other person living with you, particularly if they are not included in the plan.
• Fees: There may be adviser, legal, valuation, arrangement and other fees to pay.

Selling with an equity release is possible in some circumstances, but this will depend on your particular plan and the property you want to move to.

Is equity release right for me?

Equity release is a long-term financial commitment and should not be considered in isolation.

Alternatives might include using savings, moving to a less expensive property, taking other forms of borrowing where appropriate, or getting financial support from elsewhere.

A suitably qualified equity release adviser can assess your individual circumstances. Explain the alternatives and help you understand the costs and potential consequences before recommending whether a particular option is suitable.

Important: A lifetime mortgage is a loan secured against your home. A home reversion plan involves selling all or part of your home. Both can reduce the value of your estate and may affect your entitlement to means-tested benefits or other financial support.

If you’re considering equity release, you should speak to a suitably qualified equity release adviser who can consider your circumstances, explain the alternatives and assess whether equity release may be suitable for you.

If you’re considering other mortgage options later in life, we can connect you with our approved mortgage adviser to discuss the options that may be available based on your circumstances.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Last Updated: October 26th, 2026