What is equity release?
Equity release is a way to turn some of the value tied up in your home into cash you can spend now, while continuing to live there. 'Equity' is the part of your home you own outright, your property's value minus any mortgage still owed.
It is aimed at older homeowners, typically those who are asset-rich but cash-poor: people with a valuable, largely mortgage-free home but limited pension income or savings. The cash is tax-free and can be taken as a lump sum, smaller regular amounts, or a flexible 'drawdown' you dip into over time.
Equity release is regulated by the Financial Conduct Authority (FCA), and you can only take out a plan after receiving advice from a qualified equity release adviser. You should also take independent legal advice before signing.
The two main types of equity release
Almost all equity release today is a lifetime mortgage; home reversion is now rare.
| Feature | Lifetime mortgage | Home reversion |
|---|---|---|
| Minimum age | Usually 55 | Usually 60–65 |
| What you do | Borrow against your home | Sell a share of your home |
| Ownership | You keep 100% ownership | Provider owns the share you sold |
| What you receive | A loan, tax-free | A lump sum below market value for the share |
| How it's repaid | Sale of home when you die or go into care | Provider takes their share of the sale price |
| Interest | Rolls up (compounds) unless you pay it | No interest, they own a share instead |
Both let you stay in your home for life or until you move into long-term care.
Lifetime mortgage options
Within a lifetime mortgage you can usually choose how interest and payments work:
- Lump sum: take all the cash at once, interest compounds on the full amount from day one.
- Drawdown: take an initial amount, then draw more as needed, you only pay interest on what you've taken, so the debt grows more slowly.
- Interest-paying (optional or mandatory): pay some or all of the monthly interest to slow or stop the debt growing.
- Inheritance protection: ring-fence a percentage of your home's value to guarantee something is left behind.
How much does equity release cost?
The headline cost is interest. Lifetime mortgage rates are fixed for life and have historically sat a little above standard mortgage rates. Because interest compounds, the debt can grow quickly: at a 6% fixed rate, a debt roughly doubles about every 12 years if you make no payments.
On top of interest, expect set-up costs: an adviser fee, a lender arrangement fee, a property valuation, and solicitor's fees. These often total £2,000–£3,000, though some can be added to the loan.
A worked example: borrow £50,000 at 6% with no repayments and after 15 years you would owe roughly £120,000, more than double, which is repaid from the eventual sale of your home.
Key safeguards (Equity Release Council standards)
Plans from Equity Release Council member firms must include these protections:
- No-negative-equity guarantee: you will never owe more than your home is worth when it's sold.
- The right to remain in your home for life, or until you move into long-term care.
- The right to move to another suitable property (portability), subject to lender criteria.
- The right to make penalty-free partial repayments on most newer plans, to control the rolled-up interest.
- A fixed (or capped) interest rate for the life of the loan.
Pros and cons at a glance
Weigh the benefits against the long-term trade-offs:
- Pro: tax-free cash you can use for any purpose, while staying in your home.
- Pro: no monthly payments required on a standard lifetime mortgage.
- Pro: the no-negative-equity guarantee caps the downside for your estate.
- Con: compounding interest can erode most or all of your home's value over time.
- Con: it reduces the inheritance you leave behind.
- Con: it can affect entitlement to means-tested benefits such as Pension Credit and Council Tax Support.
- Con: early repayment charges can be high if you repay the plan in full early.
Alternatives to consider first
A good adviser must discuss alternatives. Common options include:
- Downsizing to a smaller, cheaper home and keeping the difference in cash.
- A retirement interest-only (RIO) mortgage, where you pay the interest monthly and the capital is repaid on sale.
- Using savings, investments or pension income instead of borrowing against the home.
- Asking family for support, or a deed of gift arrangement.
- Claiming all the benefits and grants you're entitled to, which equity release could otherwise reduce.
Advice is mandatory: and worth it
Equity release is a major, long-term decision regulated by the FCA. You must take qualified equity release advice and independent legal advice. Involve your family early, because it affects what you leave behind, and only use Equity Release Council member firms for the standard safeguards.