What Is Equity Release? A home can provide security, familiarity and a place to build a life. It can also hold substantial financial value.
Equity release allows some older homeowners to access part of that value without selling their home and moving immediately. However, releasing money from a property changes more than a bank balance. It can affect the debt secured against the home, future choices, inheritance and entitlement to means-tested benefits.
Understanding equity release, therefore, begins with a simple question: what value are you using today, and what may that decision mean tomorrow?
At a Glance
Equity release is a form of later-life finance that allows eligible homeowners to access money held within their property.
The two main types are:
- Lifetime mortgages, which are loans secured against the home.
- Home reversion plans, which involve selling part or all of the property to a provider.
Most lifetime mortgages are available from age 55. Home reversion plans may have a higher minimum age.
With a lifetime mortgage, you retain ownership of your home. The loan and interest are normally repaid when the last borrower dies or moves permanently into long-term care.
Equity release can reduce the value of your estate. It may also affect inheritance, benefits and future housing choices. Regulated advice is therefore essential.
What Does Equity Release Mean?
Equity is the difference between your property’s current value and any borrowing secured against it.
For example, a home worth £400,000 with a remaining mortgage of £60,000 contains £340,000 of gross equity.
This does not mean the homeowner can release the full £340,000. Providers apply lending limits based on factors including age, property value, property condition and product criteria.
Equity release converts part of that property wealth into accessible money. The money may be taken as:
- A single lump sum.
- Several smaller withdrawals.
- A combination of both.
- Regular payments, where a suitable product permits them.
The money released is generally not treated as taxable income. However, keeping or investing the money could create tax, benefit or estate-planning consequences.
Our main equity release advice page explains how Connect Lifetime can help homeowners examine these wider considerations.
What are the two types of equity release?
UK equity release is divided into two main product categories.
Lifetime mortgages
A lifetime mortgage is a loan secured against your home.
You continue to own the property. The lender registers a legal charge against it, as with other secured mortgage lending.
Many plans do not require monthly repayments. Instead, interest is added to the balance. This is known as rolled-up or compound interest.
Some products allow borrowers to:
- Pay some or all of the monthly interest.
- Make voluntary capital repayments.
- reserve part of the property’s value for inheritance.
- Take an initial amount with a drawdown facility.
- Transfer the mortgage to another suitable property.
The detailed features depend on the provider and product.
Read our guide to lifetime mortgages for a closer examination of interest, repayment options and ownership.
Home reversion plans
A home reversion plan is not a mortgage.
The homeowner sells part or all of the property to a home reversion provider. In return, they receive a lump sum, regular payments or both.
The homeowner normally receives the right to remain in the property under the plan’s terms. However, they no longer own the share sold to the provider.
The amount paid for that share will usually be below its full open-market value. This reflects the homeowner’s right to remain in the property, potentially for many years.
Our guide to home reversion plans explains how ownership and sale proceeds are divided.
Lifetime mortgage and home reversion comparison
| Feature | Lifetime mortgage | Home reversion plan |
|---|---|---|
| Product type | Secured loan | Sale of property ownership |
| Home ownership | You retain ownership | You sell part or all |
| Interest charged | Usually yes | No mortgage interest |
| Monthly payments | Often optional | Usually not applicable |
| When settled | Usually after death or permanent care | Provider receives its share when sold |
| Effect on estate | Loan and interest reduce the estate | Sold share no longer belongs to the estate |
| Minimum age | Commonly 55 | Often higher |
| Availability | Widely used | Less commonly available |
A lifetime mortgage is the more commonly discussed form of equity release. However, suitability cannot be decided from popularity alone.
How does equity release work in practice?
The process normally begins with a review of the homeowner’s objectives.
An adviser should establish:
- Why the money is needed.
- How much is required.
- Whether the need is immediate or ongoing.
- What existing mortgages must be repaid.
- Whether the homeowner expects to move.
- Whether family members should be involved.
- How benefits or inheritance could be affected.
- Whether another option may cost less.
The property is then valued. The provider uses the valuation, the youngest applicant’s age and its lending criteria to calculate the possible release.
A solicitor provides independent legal advice before completion. The solicitor should ensure the homeowner understands the legal effect of the agreement.
The provider then releases the money. Any existing mortgage secured against the property will normally need to be repaid as part of completion.
Our explanation of how equity release works follows the journey from initial advice through to completion.
How much equity can be released?
The amount available depends on the provider and the application.
Providers commonly consider:
- The age of the youngest applicant.
- The property’s market value.
- The property type.
- Construction method.
- Property condition.
- Location.
- Existing secured borrowing.
- Health and lifestyle information.
- Whether the application is single or joint.
- The chosen product features.
Older applicants may be offered a higher percentage of the property value. Certain medical or lifestyle conditions may also affect the available loan-to-value.
However, the maximum available amount is not automatically the right amount to borrow.
Interest may be charged for many years. Releasing only what is needed can reduce the future balance. A drawdown plan may also reduce interest because interest is generally charged only after money has been withdrawn.
What can equity release be used for?
The money can normally be used for many legal purposes.
Common reasons include:
- Repaying an existing mortgage.
- Clearing an interest-only mortgage.
- Funding essential home repairs.
- Adapting a property for reduced mobility.
- Supplementing retirement income.
- Supporting children or grandchildren.
- Paying for private care or support.
- Replacing expensive borrowing.
- Building an emergency reserve.
- Funding a significant purchase.
The purpose should be examined carefully.
Using equity release to repair an unsafe roof may carry different considerations from releasing money for discretionary spending. Gifting money to family can also affect the homeowner’s future resources and may create inheritance-tax considerations.
A broader retirement planning review can help place the proposed borrowing within future income, housing and family plans.
Does equity release require monthly repayments?
Not always.
Traditional lifetime mortgages often allow interest to roll up. No monthly interest payment is required, provided the product conditions are met.
However, compound interest can increase the balance significantly over time.
Consider a simplified example:
- Initial lifetime mortgage: £60,000.
- Interest rate: 6% fixed.
- No repayments.
- Illustrative balance after ten years: approximately £107,000.
- Illustrative balance after twenty years: approximately £192,000.
This is only a mathematical example. It is not a product illustration or quotation.
Some modern plans allow voluntary repayments. Others require agreed payments for a specified period.
Products that meet the Equity Release Council’s standards must include specific consumer protections. These include a no-negative-equity guarantee and repayment flexibility within the provider’s criteria. The Council’s current professional standards and guarantees explain these protections.
What is a no-negative-equity guarantee?
A no-negative-equity guarantee means the estate should never owe more than the property’s sale proceeds, provided the plan conditions have been met.
When the property is sold, the sale proceeds repay the lifetime mortgage.
If the amount owed exceeds the property’s sale value, the guarantee prevents the lender from recovering the shortfall from other estate assets.
The guarantee does not stop the mortgage balance from growing. It limits the amount recoverable to the qualifying property’s sale proceeds.
What are the risks of equity release?
Equity release can provide useful flexibility. However, it is a long-term commitment secured against an important asset.
The main considerations include:
- Interest can compound over time.
- The remaining estate may be smaller.
- Beneficiaries may inherit less.
- Means-tested benefits could be affected.
- Early repayment charges may apply.
- Moving home may require lender approval.
- Some properties may not meet future lending criteria.
- Money released today may not meet future needs.
- Repaying the plan early can be expensive.
- Family expectations may need to be discussed.
- A home reversion plan permanently changes ownership.
The FCA regulates equity release advice and disclosure. The equity release advice rules require firms to follow specific standards when advising on and arranging these products.
Can equity release affect benefits?
Yes.
Releasing money does not always affect benefits immediately. The outcome depends on the benefit, the amount released and how the money is held or spent.
A lump sum retained in savings may be treated as capital. This could affect entitlement to means-tested support.
Pension Credit rules consider income and capital when assessing entitlement. Current Pension Credit technical guidance should be checked before proceeding.
An adviser should identify possible benefit concerns. Specialist welfare-benefit advice may also be required.
Will equity release reduce inheritance?
Usually, yes.
With a lifetime mortgage, the outstanding loan and interest are repaid from the property’s sale proceeds. This leaves less value for the estate.
With a home reversion plan, the share sold to the provider no longer belongs to the homeowner’s estate.
Some lifetime mortgages include an inheritance protection option. This may allow a percentage of the property value to be ring-fenced.
Protecting inheritance can reduce the amount available to release. The feature must therefore be assessed against the homeowner’s immediate needs.
Family involvement may be helpful where the homeowner is comfortable including relatives. However, the recommendation must remain based on the homeowner’s interests.
Is equity release the same as remortgaging?
No.
Equity release is primarily designed for later-life borrowers and may not require standard monthly repayments.
A conventional remortgage normally involves:
- Affordability assessment.
- Regular monthly payments.
- A defined mortgage term.
- Income evidence.
- Repayment before a specified end date.
For some homeowners, a residential remortgage or retirement mortgage may provide a lower-cost alternative. However, it must remain affordable.
The Connect Mortgages guide to remortgaging to release equity explains how conventional capital raising is assessed.
Homeowners below the normal equity release age can also read about alternatives to equity release for people under 55.
What alternatives should be considered?
Equity release should not be assessed in isolation.
Possible alternatives include:
- Using existing savings.
- Reducing non-essential expenditure.
- Claiming unclaimed benefits.
- Taking pension income.
- Downsizing.
- Moving to a less expensive property.
- Remortgaging.
- Taking a retirement interest-only mortgage.
- Applying for a further advance.
- Using a second charge mortgage.
- Receiving family support.
- Delaying the proposed expenditure.
- Releasing a smaller amount.
Each alternative creates different costs and consequences.
Connect Lifetime’s later-life lending options page explains how equity release fits alongside other mortgage routes.
How Connect Lifetime can help
Connect Lifetime provides advice across equity release, lifetime mortgages, later-life lending, residential mortgages, remortgaging and related protection needs.
An adviser can help you:
- Define why the money is required.
- Review your current mortgage.
- Consider suitable alternatives.
- Compare available providers and products.
- Understand interest and future balances.
- Review repayment options.
- Examine possible benefit implications.
- Discuss inheritance preferences.
- Consider future moving plans.
- Understand fees and early repayment charges.
- Obtain a personalised illustration.
- Complete the regulated advice process.
Connect Lifetime is a credit broker, not a lender. A recommendation should be based on your needs, objectives and circumstances.
Questions to ask before releasing equity
Before proceeding, ask:
- What exact problem will the money solve?
- How much do I need now?
- Could I release a smaller amount?
- What could the balance become over time?
- Can I make repayments without a charge?
- What happens if I move?
- Could my benefits be affected?
- How much inheritance may remain?
- What early repayment charges apply?
- Which alternatives have been considered?
- What happens if my health or care needs change?
- Have I received independent legal advice?
The amount available is important. The consequences of taking it are equally important.
Speak to an equity release adviser
Equity release can turn part of a home’s future value into money available today.
That exchange may be appropriate for some homeowners. For others, a different mortgage, downsizing or using existing resources may produce a better outcome.
The purpose of advice is not simply to find a product. It is to test whether the proposed solution remains suitable when its costs, risks and alternatives are considered together.
Contact Connect Lifetime to discuss your circumstances with an adviser.
Risk warning: A lifetime mortgage is secured against your home. It will reduce the value of your estate and may affect your entitlement to means-tested benefits. To understand its features and risks, ask for a personalised illustration.
Frequently asked questions
What is equity release in simple terms?
Equity release allows eligible homeowners to access some of the money held within their property without selling and moving immediately.
Is equity release a loan?
A lifetime mortgage is a loan secured against your home. A home reversion plan is not a loan because it involves selling part or all of the property.
What age can you take equity release?
Most lifetime mortgages have a minimum age of 55. Home reversion plans may require applicants to be older. The youngest applicant’s age normally determines eligibility.
Do you still own your home after equity release?
You retain ownership with a lifetime mortgage. With a home reversion plan, you sell part or all of the property to the provider.
When is a lifetime mortgage repaid?
It is normally repaid when the last borrower dies or moves permanently into long-term care. It may also be repaid earlier, although early repayment charges could apply.
Can you move after taking equity release?
Many lifetime mortgages can be transferred to another suitable property. The new property must meet the provider’s criteria. Repayment may be required if it does not.
Is equity release money tax-free?
The money released is generally not treated as taxable income. However, tax, benefits and estate-planning consequences can arise after the money is received.
Is equity release suitable for everyone?
No. Suitability depends on the homeowner’s needs, age, property, finances, family plans and available alternatives. Regulated advice is required before proceeding.
