Equity release explained
Equity release lets homeowners aged 55+ in the UK access some of the money tied up in their home without selling it or moving out. The loan and any interest are usually repaid from the sale of the home when the last borrower dies or moves into long-term care. It can help, but it reduces what you can leave behind.
How equity release works
There are two types of plan, both regulated by the Financial Conduct Authority (FCA). Our step-by-step guide to equity release goes into more detail.
Lifetime mortgages
A lifetime mortgage is a loan secured against your home. You keep ownership and there are usually no monthly repayments: interest is added to the loan and repaid, with the amount borrowed, when the home is sold. You can often choose:
- A lump sum: all the money at the start, with interest charged on the full amount from day one.
- Drawdown: an initial amount plus a reserve for later, with interest only on money you take.
Home reversion plans
You sell part or all of your home to a provider for a lump sum or regular payments, keeping the right to live there rent-free. You typically receive well below the market value of the share you sell. These plans are now rare. See our guides to home reversion plans and lifetime mortgage vs home reversion.
Who can get equity release?
Lender criteria vary, but you will usually need to:
- be aged 55 or over (on a joint plan, both borrowers)
- own a UK home that is your main residence
- have a property above the lender's minimum value, often around £70,000
- pay off any existing mortgage, which can be done from the money released
Our equity release providers directory sets out, A–Z, what named lenders publish about their plans and criteria.
How much equity release could provide
The amount depends mainly on your age and property value. The older you are, the higher the percentage you can usually release, because the loan is expected to run for fewer years. As a rough guide, MoneyHelper says a lifetime mortgage will likely only offer around 10% to 20% of a home's value at age 55. Each lender sets its own limits for older ages, so there is no single figure; see equity release over 55 for more on how age affects the amount.
Our guides to equity release over 55 and equity release over 70 explain how age affects eligibility and the amount available.
Our equity release calculator gives an estimate; an adviser can provide a personalised illustration.
What equity release costs
The main cost is interest. With no repayments, interest is charged on the loan and on interest already added, so the debt compounds. At around 7% a year, the amount owed can roughly double in around 10 years.
Upfront fees (advice, valuation, arrangement and legal) typically total around £1,500-£3,000.
Early repayment charges may also apply. Our guide to equity release costs explains each cost.
Equity release safeguards
Lifetime mortgages from members of the Equity Release Council meet product standards including:
- No negative equity guarantee: provided the plan's terms are met, you or your estate will not owe more than the home sells for.
- Right to remain: you can live in your home for life, or until you move into long-term care, provided you keep to the plan's terms.
- Right to move: you can take the plan to another suitable property, subject to the lender's criteria. See moving house after equity release.
- Fixed or capped rates: the interest rate is fixed, or variable with a lifetime cap.
A joint plan usually runs until the last borrower dies or moves into care; see joint equity release.
Effects on inheritance and benefits
Because the debt usually grows, equity release reduces what you can leave to family. The loan is deducted from your estate, which may lower an inheritance tax bill; see equity release and inheritance tax.
Money released can also affect means-tested benefits and help with care costs (equity release for care fees covers this). For example, Pension Credit starts to take account of savings above £10,000.
Alternatives to equity release
- Downsizing: moving somewhere smaller, with no ongoing interest. Compare equity release vs downsizing.
- Retirement interest-only (RIO) mortgages: you pay the interest monthly, so the debt does not grow, but payments must be affordable.
- Using savings or pension income, or support from family.
Getting advice before you decide
Equity release is hard to reverse. You will need advice from an FCA-regulated adviser, who should also consider your alternatives, and your own independent solicitor before you sign. Our guide to finding a regulated equity release adviser explains what to check.
Not sure whether equity release is suitable?
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Frequently asked questions
Do I have to make monthly repayments with equity release?
Not usually. With most lifetime mortgages, interest is added to the loan instead of being paid monthly, so the amount owed grows. Many plans allow optional repayments, which can slow that growth. The loan and interest are normally repaid when the home is sold.
Could I owe more than my home is worth?
Not if your plan has a no negative equity guarantee, one of the Equity Release Council's standards for member lenders. It means you or your estate will not repay more than the home sells for, even if the debt has grown larger. Confirm the guarantee's conditions with your adviser.
Can I pay off equity release early?
Usually, but an early repayment charge may apply, particularly in the plan's early years. How it is calculated varies, and some plans waive it in set situations, such as a move into long-term care. Our equity release costs guide explains these charges.
What happens to equity release when I die?
The plan normally ends when the last borrower dies or moves into long-term care. The home is usually sold and the loan and interest repaid from the proceeds, with anything left passing to your estate. Family may repay the loan from other funds instead, within a period the lender sets.
Can I get equity release if I still have a mortgage?
Often, yes. Any existing mortgage must be paid off when the plan starts, commonly from part of the money released. That leaves less for other purposes, so it is worth checking what would remain. The equity release calculator can give a rough idea before you speak to an adviser.