What is Equity Release?

Equity Release Definition

Equity release is a way for homeowners aged 55 and over to access the wealth tied up in their property without having to sell or move out. It allows you to convert some of your home's value into tax-free cash, either as a lump sum or in smaller drawdowns over time.

There are two main types of equity release: lifetime mortgages and home reversion plans. Lifetime mortgages account for over 99% of the equity release market in the UK.

Lifetime Mortgages

A lifetime mortgage is a loan secured against your home. You retain full ownership and the right to live in the property for life. Key features:

• Available to homeowners aged 55+
• You receive a tax-free lump sum or drawdown facility
• Interest rolls up (compounds) over the life of the loan unless you choose to make payments
• The loan is repaid when you die or move into permanent long-term care, usually from the sale of the property
• No negative equity guarantee - you will never owe more than your home is worth (on Equity Release Council plans)
• Fixed or variable interest rates available, typically 5–7% (2025/26 rates)

Home Reversion Plans

A home reversion plan involves selling part or all of your property to a provider in exchange for a tax-free lump sum, a regular income, or both. You retain the right to live in the property rent-free for the rest of your life.

• Available to homeowners typically aged 60–65+
• You sell a percentage of your property at below market value (typically 20–60% of market value)
• No interest charges - you have sold a share, not taken a loan
• The provider receives their share of the sale proceeds when the property is eventually sold
• You cannot sell the property without the provider's agreement

How Much Can You Release?

The amount you can release depends on:

• Age: Older applicants can typically release a higher percentage
• Property value: Most providers require a minimum property value of £70,000–£100,000
• Health: Certain health conditions or lifestyle factors may qualify you for enhanced rates
• Property type: Standard construction freehold and long-leasehold properties are most suitable

As a rough guide, a 65-year-old might release 25–35% of their property value, while a 75-year-old might release 35–50%.

Risks and Considerations

• Compound interest: With a lifetime mortgage, interest rolls up quickly - a £100,000 loan at 6% becomes £179,000 after 10 years and £321,000 after 20 years
• Reduced inheritance: Equity release reduces the estate you leave to your heirs
• Impact on benefits: The cash released may affect entitlement to means-tested benefits such as Pension Credit, Council Tax Support and Universal Credit
• Early repayment charges: Repaying a lifetime mortgage early (e.g. to move or downsize) may incur significant penalties
• Moving home: Transferring the plan to a new property is possible but the new property must meet the provider's criteria

Regulation and Protections

Equity release products are regulated by the Financial Conduct Authority (FCA). Providers who are members of the Equity Release Council must adhere to additional standards including:

• A no negative equity guarantee on all plans
• The right to remain in the property for life
• The right to move the plan to a suitable alternative property
• Clear and transparent product information

Independent legal advice is required before completing any equity release transaction.