Equity Release: What You Need to Know

Equity release allows homeowners aged 55 and over to access the value tied up in their property without having to sell it or move out. It can provide a useful source of income or capital in retirement, but it is a significant decision with long-term consequences that needs careful consideration.

How Equity Release Works

There are two main types of equity release:

• Lifetime mortgage — the most common type. You take out a mortgage secured on your home and receive a tax-free lump sum or regular payments. Interest is charged on the loan but is typically “rolled up” (added to the debt) rather than paid monthly, meaning the amount you owe grows over time. The loan is repaid when you die or move into long-term care, usually from the sale of your property.
• Home reversion — you sell all or part of your home to a provider in exchange for a tax-free lump sum or regular payments, plus the right to live in the property rent-free for life. You receive less than market value because the provider waits to receive their share. These are much less common.

The No Negative Equity Guarantee

All plans approved by the Equity Release Council come with a no negative equity guarantee. This means you (or your estate) will never owe more than the value of your home, regardless of how much interest has rolled up or what happens to house prices.

This is an important protection, but it does not prevent the loan from consuming a significant proportion of your home’s value over time.

Costs and Interest

Key costs to understand:

• Interest rates — typically fixed for life at rates of around 5-7% (as of 2026). Because interest compounds, the debt can double roughly every 10-14 years.
• Arrangement fees — typically £500 to £1,500
• Valuation fees — £300 to £500
• Legal fees — £500 to £1,000
• Early repayment charges — some plans charge significant fees if you repay early, though many modern plans allow penalty-free partial repayments of up to 10% per year

Impact on Benefits and Inheritance

Before proceeding, consider the wider impact:

• Means-tested benefits — a lump sum from equity release could take your savings above the threshold for Pension Credit, Council Tax Reduction, or care funding
• Inheritance — equity release reduces the value of your estate, meaning less for your beneficiaries. Some plans let you ring-fence a percentage of your home’s value as a guaranteed inheritance.
• Care costs — your home may be disregarded in the care means test while you live in it, but equity release cash in savings would be counted

Alternatives to Equity Release

Before committing to equity release, consider whether alternatives might meet your needs:

• Downsizing — moving to a smaller, cheaper property releases equity outright
• Retirement interest-only mortgage — you pay the interest monthly and the capital is repaid on death or sale, keeping the debt from growing
• Council or government support — check whether you qualify for benefits like Pension Credit or Attendance Allowance
• Family arrangements — some families find informal solutions, though these should be carefully documented

Financial advice is a regulatory requirement for equity release. You must receive advice from a qualified adviser before any plan can proceed.