Equity release lets homeowners aged 55 and over take cash out of their property without moving. Most people use a lifetime mortgage, where nothing is repaid until you die or go into long-term care. Interest builds on interest, so the debt grows.
Equity release has become an increasingly important part of later-life financial planning. More and more homeowners are looking to unlock wealth from their homes to support retirement plans, financially help family members or to pay off debt. But with this, it’s grown into a mainstream financial product that’s still widely misunderstood, and the compounding interest involved means getting it wrong can be expensive. This blog explains what equity release actually is, how the main products work, what it costs, and where the risks and protections sit.
Equity release is a way for homeowners aged 55 and over to release tax-free cash from the value of their property, either as a lump sum, in smaller amounts over time, or a mix of both. You keep living in the home, and in the most common version of the product, you keep full ownership of it too. The money you release doesn't need to be repaid monthly, and for most plans there's no fixed date it needs to be repaid at all. Instead, it's usually settled from the sale of the property after the homeowner dies or moves into permanent long-term care.
There are two main types of product: lifetime mortgages and home reversion plans. They work in almost opposite ways, and the difference between them matters more than most homeowners realise.
A lifetime mortgage is a loan secured against your home. You continue to own 100% of the property, and the loan, plus the interest that builds up on it, is repaid when the home is eventually sold. Lifetime mortgages now make up close to the entire equity release market, largely because homeowners don't have to give up any ownership to use one.
Interest is the part that catches people out. Most lifetime mortgages don't require monthly repayments, so the interest is added to the loan rather than paid off, and it compounds. That means you're charged interest on the interest, not just on the original amount borrowed. As an example, £100,000 borrowed at a fixed rate of around 6.6% could grow to roughly £361,000 over 20 years if nothing is ever repaid. That isn't a reason to avoid the product, but it's the single most important thing to understand before signing anything, since it directly reduces what's left in the property for anyone inheriting it.
Rates on lifetime mortgages in 2026 typically range from around 5% at the lower end to 9.5% or more for larger loans or specific product features, with rates fixed for the life of the plan once agreed. A 5% rate is generally considered excellent, 6% is closer to the market average, and anything above 7% usually reflects a higher loan amount or additional flexibility built into the plan.
Lifetime mortgages aren't one product, they come in a few different structures depending on how and when you want the money.
A lump sum lifetime mortgage releases the full amount agreed in one go at the start of the plan. It suits homeowners with a specific, immediate need, such as clearing an existing mortgage or funding a large one-off cost.
A drawdown lifetime mortgage instead sets up a smaller initial release plus a reserve facility you can dip into later, as and when you need it. Because interest is only charged on the money you've actually withdrawn, not the full reserve sitting untouched, drawdown plans are usually more cost-effective over time than taking everything as a lump sum you don't immediately need.
An enhanced lifetime mortgage is aimed at homeowners with certain health conditions or lifestyle factors that are likely to shorten life expectancy. Because the lender expects the loan to run for a shorter period, they'll often allow a higher percentage of the property's value to be released. It's one of the few areas in financial services where being in poorer health can actually improve the terms you're offered.
Many modern plans also allow voluntary partial repayments, typically up to 10% or 12% of the loan per year without penalty, which slows down how quickly the interest compounds if you're able to make them.
Home reversion plans work differently, and they've become far less common. Instead of borrowing against your home, you sell a share of it, typically somewhere between 20% and 60%, to a reversion company in exchange for a cash lump sum, a regular income, or both. You keep the right to live in the property rent-free for the rest of your life, but you no longer own the portion you've sold.
Because there's no loan and no interest, there's nothing compounding in the background. The trade-off is that you lose any future growth on the share you've sold, and reversion providers typically pay well below full market value for that share, since they're taking on the risk of not knowing how long you'll live in the property. Most of the well-known equity release providers stopped offering home reversion plans years ago, and today it's a genuinely niche option arranged by a small number of specialist firms.
The amount available depends heavily on age, since it reflects how long the lender expects the loan to run before it's repaid. As a rough guide, a 55-year-old might be able to release around 25% to 26% of their property's value, a 70-year-old closer to 45%, and homeowners aged 80 or over can sometimes access 55% to 58% of the property's value. Property type, condition, and location all factor into the exact figure a lender offers, and joint applications are based on the age of the youngest applicant, since that determines the likely length of the loan.
Reputable equity release providers are members of the Equity Release Council, and membership comes with standards that genuinely matter. Every Council-approved lifetime mortgage includes a no-negative-equity guarantee, meaning you or your estate will never owe more than the property sells for, even if the debt has grown larger than the sale price. You also keep the right to remain in your home for life, or until you need long-term care, provided it stays your main residence. Most plans include the right to move to a new property, known as portability, subject to the new home meeting the lender's criteria, and interest rates on Council-approved plans must be either fixed for life or capped so they can never rise beyond an agreed limit.
These protections are what separate a properly regulated lifetime mortgage from the "sell your home cheap" reputation equity release had decades ago, before the Council's standards existed. It's still worth checking that any plan and provider you're considering is Council-registered rather than assuming it automatically is.
Releasing equity reduces the value left in your estate, which has two separate consequences worth thinking through separately. On the inheritance side, because a lifetime mortgage creates a debt against the property, it can lower the value of your estate for inheritance tax purposes, particularly if the money released is spent or gifted rather than saved. Gifts to family members fall outside your estate for inheritance tax purposes if you live for seven years after making them, so some homeowners use equity release specifically to pass on money early rather than waiting for it to be inherited later.
On the benefits side, cash released through equity release counts toward your savings for means-tested benefit assessments, and receiving a lump sum could reduce or remove entitlement to benefits like Pension Credit or help with care costs if it pushes your savings over the relevant threshold. Disability-related benefits that aren't means-tested, such as Attendance Allowance or Personal Independence Payment, aren't affected in the same way. Anyone currently receiving or likely to need means-tested support should factor this in before releasing a large lump sum, and a drawdown plan, where money is released only as needed, can sometimes reduce this risk compared with taking everything upfront.
Beyond the interest itself, there are upfront costs to budget for. A property valuation is usually required so the lender knows exactly what the home is worth, and this is often free or a fixed fee depending on the lender. Legal fees cover a solicitor confirming the plan is set up correctly and that you understand the terms, since independent legal advice is a requirement for every Equity Release Council plan, not an optional extra. Adviser fees vary by firm; some equity release specialists charge a flat fee only if a plan completes, while others charge on application. Some lenders also apply a product or completion fee, which can sometimes be added to the loan itself rather than paid upfront, though doing so means it starts accruing interest immediately along with everything else.
None of these costs are usually large enough to change whether equity release makes sense, but they should be part of the conversation with an adviser from the start, rather than a surprise once you're partway through an application.
Getting a lifetime mortgage follows a fairly consistent path regardless of provider. It starts with a conversation with a qualified equity release adviser, who will look at your circumstances, your property, and what you're trying to achieve, and explain whether equity release or an alternative is a better fit. If you decide to go ahead, the adviser recommends a specific plan and lender based on your age, health, and property, then submits an application on your behalf.
The lender arranges a valuation of the property, and once that's confirmed, you'll receive a formal offer setting out the amount available, the interest rate, and the terms of the plan. Before anything completes, you're required to take independent legal advice from a solicitor, who will talk you through the contract and make sure you understand exactly what you're agreeing to, including what happens if you want to move house or make repayments later. Once the solicitor confirms everything is in order and you're happy to proceed, the funds are released, either as a lump sum into your account or set up as a drawdown facility you can access over time.
The whole process typically takes somewhere between six and ten weeks from first application to funds being released, though it can move faster or slower depending on the complexity of the property and how quickly paperwork comes back at each stage.
Equity release suits homeowners who are asset-rich but cash-poor, want to stay in their current home, and don't need to preserve the full value of the property for inheritance. It's less suitable for anyone who could achieve the same goal by downsizing to a smaller, less valuable property, since that avoids interest altogether and can still release a substantial amount of cash. A retirement interest-only mortgage is worth comparing too, since it involves paying off the interest monthly rather than letting it compound, which keeps the loan balance stable, though it does require proof you can afford those ongoing payments.
Family loans or early inheritance gifts are another alternative some homeowners consider instead, though these come with their own legal and tax complications that are worth discussing with a solicitor rather than assuming they're simpler than they are.
None of these options are automatically better or worse, they suit different circumstances, and the right answer depends on your age, health, how long you plan to stay in the property, and what matters more to you: maximising the inheritance left behind or having more cash available now. A qualified equity release adviser is required by law to talk through all of this before recommending a specific plan, and it's worth involving family in that conversation too, since it affects what they can eventually expect to inherit.
Equity release isn't the last resort it once had a reputation for being. Regulated properly, with the right protections in place, it's simply another tool for turning a home's value into something you can actually use while you're still living in it. The details matter more than the headline figures, though, and that's exactly where a specialist adviser earns their fee.
Written by
Ashley has spent over 20 years in property, building and selling two estate agencies before founding the firm. He leads residential, buy-to-let and protection advice at AB Mortgages, and the complex, high value cases at AB Specialist Finance. His standard is simple: every client gets MD-level service.
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