Equity release: the complete UK guide

Equity release is a way to access some of the money tied up in your home without having to sell it or move out. If you're a homeowner aged 55 or over, an equity release scheme lets you unlock a tax-free lump sum, a regular income, or both, secured against the value of your property.

There are two main routes: a lifetime mortgage, where you borrow against your home while keeping full ownership, and a home reversion plan, where you sell part or all of your home in exchange for cash while keeping the right to live there. Lifetime mortgages make up the vast majority of the UK market.

Unlike a standard mortgage, you don't need to make monthly repayments, unless you choose a plan that allows them. Instead, the loan plus rolled-up interest is usually repaid when you die or move into long-term care, from the sale of your home.

Who is equity release for?

Equity release tends to suit homeowners who are asset-rich but cash-poor in retirement - your home has built up significant value, but your pension or savings don't stretch as far as you'd like. To be eligible, you'll typically need to:

• Be aged 55 or over (some Payment Term Lifetime Mortgages are available from age 50)
• Own a UK residential property worth at least £70,000 to £100,000, depending on the lender
• Either own your home outright, or have a small mortgage balance that can be repaid from the funds released

It isn't right for everyone. Because it reduces the value of your estate and is a long-term commitment secured against your home, it's worth weighing up equity release alongside the alternatives before deciding to proceed.

Equity release works by using your home as security for a cash release, with repayment deferred until later in life. The exact mechanics depend on whether you choose a lifetime mortgage or a home reversion plan.

With a lifetime mortgage, you take out a loan secured against your property. You keep 100% ownership of your home. Interest is charged on the amount you borrow, and because most plans don't require monthly repayments, that interest rolls up and compounds over time unless you choose to pay some or all of it.

With a home reversion plan, you sell part or all of your home to a reversion provider at a discount to market value, in exchange for a tax-free lump sum. You keep a lifelong right to live in the property rent-free, but you no longer own the share you've sold, so you won't benefit from any future rise in its value on that portion.

The loan or the reversion agreement is normally settled when you die or move into permanent long-term care. At that point, your home is sold and the proceeds are used to repay what's owed, with any remainder going to your estate.

Not all lifetime mortgages work the same way. The right type for you depends on whether you need all the money at once, want to draw it down in stages, or would prefer to keep some control over how the balance grows.

Lump sum lifetime mortgage

You release the full amount in one go as a single tax-free lump sum. Because you draw the whole amount from day one, interest accrues on the entire balance from the start, which usually makes this the most straightforward option if you have a specific, immediate need such as clearing an existing mortgage or funding home improvements.

Drawdown lifetime mortgage

Instead of taking everything upfront, you're approved for a total facility but only draw an initial amount, leaving the rest in reserve to access later as needed. Interest is only charged on the money you've actually drawn, which can significantly reduce the overall cost of interest roll-up compared with taking a large lump sum you don't need yet.

Payment Term Lifetime Mortgage (PTLM)

A newer type of plan, available from some lenders from age 50, that requires monthly interest payments for a set term, often until retirement age. Because interest doesn't roll up during that period, the balance grows more slowly. It can suit homeowners who have enough income to service payments now but want the security of the loan converting to a standard interest-roll-up lifetime mortgage later in life.

Enhanced and impaired lifetime mortgages

If you have certain health conditions or lifestyle factors, such as smoking or a diagnosed illness, some lenders will offer a higher loan-to-value than their standard range, because your life expectancy is factored into their calculations. This can mean accessing significantly more equity than a standard plan would allow.

Equity release interest rates are fixed for the life of the plan, or capped on some drawdown plans, which means the rate you're offered when you take out the loan won't change even if wider mortgage rates rise later. This is a requirement of Equity Release Council-approved plans and gives you certainty over how your balance will grow.

Rates vary between lenders and depend on factors including the plan type, your age, your property's loan-to-value, and whether you choose a lump sum, drawdown, or Payment Term Lifetime Mortgage. Because rates move frequently and the right plan depends entirely on your circumstances, speak to an advisor for a personalised illustration showing the current rate available to you.

AER vs MER

You may see two figures quoted on a lender's illustration: the Annual Equivalent Rate (AER) and the Monthly Equivalent Rate (MER). The AER shows the true annual cost once compounding is taken into account, while the MER reflects the rate applied each time interest is calculated, usually monthly. Comparing plans on AER, rather than the headline rate, gives you a fairer like-for-like comparison.

Understanding compound interest

Because most lifetime mortgages don't require monthly repayments, unpaid interest is added to the loan balance each year, or each month depending on the plan, and future interest is then calculated on that larger amount. This compounding effect means the balance can grow considerably faster in the later years of a plan than in the earlier years. Over a 15 to 20-year period, the total owed can end up being several times the amount originally borrowed. A drawdown plan, a Payment Term Lifetime Mortgage, or making voluntary partial repayments can all help slow this growth. Ask your advisor for illustrative figures based on the specific plan and rate available to you.

The amount you can release depends mainly on your age and your property's value. As a general rule, the older you are, the higher the percentage of your home's value, known as loan-to-value or LTV, you can typically access, because lenders base plans partly on life expectancy.

Most lenders set a minimum property value of £70,000 to £100,000, and the maximum you can release will also depend on your health, lifestyle, the plan type you choose, and the specific lender's criteria. Try our equity release calculator to get an idea of how much you might be able to release based on your age and property value.

Equity release involves both upfront costs and a long-term cost through rolled-up interest. Understanding both before you commit is essential, because the total amount owed can grow substantially over the life of the plan.

The bigger cost over time is compound interest. Because most lifetime mortgages don't require monthly repayments, the interest that isn't paid is added to your loan balance and then itself starts accruing interest. Left to run for 15 to 20 years, this compounding effect means the amount owed can end up being several times the original loan, which is why it's worth asking your advisor for an illustration showing how the balance is projected to grow over time before you proceed.

Early Repayment Charges (ERCs)

If you want to repay some or all of an equity release plan before the point it would normally end, an Early Repayment Charge may apply. There are two common structures:

• Fixed ERC - a set percentage that reduces over a number of years, typically starting higher and stepping down each year you hold the plan
• Gilt-linked ERC - calculated by reference to movements in UK government bond (gilt) yields since you took out the plan, meaning the charge could be low, high, or occasionally zero, depending on how gilt yields have moved

Most Equity Release Council-approved plans also let you make penalty-free partial repayments, typically up to 10% of the original loan each year, which can help manage the size of your ERC and slow the growth of your balance. Which ERC structure suits you depends on how likely you think you are to want to repay early, so it's worth talking this through with your advisor when comparing plans.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. While most lifetime mortgages don't require monthly repayments, any plan that does, such as a Payment Term Lifetime Mortgage, carries this risk if payments aren't kept up.

Equity release is a regulated financial product. Both the lender and the advisor arranging your plan must be authorised by the Financial Conduct Authority, and you can check any firm's status on the Financial Conduct Authority Register.

Most plans on the market today are also required to meet Equity Release Council product standards, which build in a set of consumer protections on top of Financial Conduct Authority regulation. These standards are a major reason equity release today looks very different from, and much safer than, some of the older-generation plans sold decades ago.

What if something goes wrong?

If you have a complaint about your equity release plan that the lender or advisor can't resolve, you can refer it to the Financial Ombudsman Service (FOS) free of charge. If a firm you dealt with fails and can't meet a valid claim, the Financial Services Compensation Scheme (FSCS) may be able to protect you, subject to its usual limits and eligibility rules.

Impact on inheritance

Equity release reduces the value of your estate, because the loan plus any rolled-up interest is repaid from the sale of your home before anything passes to your beneficiaries. Some plans offer an inheritance protection guarantee, which lets you ring-fence a percentage of your property's future value for your family, though this usually reduces the amount you can release. It's worth talking to family members about your plans, since equity release can come as a surprise to adult children if it isn't discussed in advance.

Impact on means-tested benefits

Releasing a lump sum can push your savings above the threshold for means-tested benefits such as Pension Credit, Council Tax Reduction, and Universal Credit, potentially reducing or ending your entitlement. This is a particular risk for households on lower incomes, so it's important to get a full picture of your benefits position before proceeding. A drawdown plan, where you only release what you need when you need it, can help manage this risk compared with taking a large lump sum you don't spend straight away.

Impact on care home funding

If you later need residential care, your local authority will assess your finances (a means test) to decide how much you contribute towards the cost. Equity release proceeds held as savings can count towards this assessment. Deliberately giving away money or assets shortly before needing care, in an attempt to avoid this means test, can be treated as a deliberate deprivation of assets and disregarded by the local authority, so this isn't a reliable planning strategy. NHS Continuing Healthcare is a separate, fully funded scheme for those with significant ongoing health needs, assessed independently of your finances.

Tax position

Money you release through equity release is a loan, not income, so it isn't subject to Income Tax, and there's no Capital Gains Tax on your main home. From April 2027, changes to how pensions are treated for Inheritance Tax purposes mean some homeowners are looking at equity release as an alternative way to fund retirement spending while leaving pension funds untouched for beneficiaries. This is a complex area, and a qualified tax advisor or financial planner can help you weigh up what's right for your estate.

If you're worried about how equity release might affect your benefits or overall financial position, MoneyHelper (moneyhelper.org.uk, 0800 138 7777) offers free, independent guidance and can help you think through your options before you speak to an advisor.

Equity release isn't the only way to access money in later life, and it won't suit everyone. Before deciding, it's worth comparing it against the alternatives, including secured loan alternatives and a retirement interest-only mortgage, both covered in more detail below.

From your first conversation with an advisor to receiving funds, most equity release applications take around 8 to 12 weeks to complete, though timescales vary depending on the lender, your property, and how quickly legal work progresses.

It may not be right for you if...

• You could meet your needs by downsizing to a smaller, cheaper property instead
• You have a shorter-term cash need that a personal loan or further advance could cover more cheaply
• Leaving a specific, protected inheritance for your family is a priority you're not willing to compromise on
• You're relying on releasing equity to top up income without first checking your entitlement to means-tested benefits or grants

If any of this sounds like your situation, it's still worth a conversation. An advisor can talk through your circumstances and help you decide whether equity release, or one of the alternatives, is the better fit. Read our equity release advice guide for more on what to expect from that conversation.

Equity release is a lifetime mortgage. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or other debt secured on it. Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. A lifetime mortgage is not suitable for everyone, and we recommend seeking independent financial and legal advice before proceeding.