TL;DR
Equity release lets homeowners aged 55 and over access cash tied up in their property without selling. The most common product is a lifetime mortgage, where interest rolls up and compounds until the property is sold. On a £100,000 lifetime mortgage at 5.5 percent, rolled-up interest over 20 years leaves a debt of approximately £291,000. Equity release affects inheritance, benefits eligibility and future care funding. Always seek independent specialist advice.
Last reviewed: June 2026 | Sources: FCA, Equity Release Council, GOV.UK
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Finance Before You Release Equity from Your Home Minimum age: typically 55Product type: usually a lifetime mortgage — rolled-up interestInterest effect: debt doubles roughly every 13 years at 5.5%Inheritance impact: reduces estate value significantlyRegulator: FCA — equity release is regulated |
What equity release is and who it is for
Equity release allows homeowners aged 55 and over to access the equity built up in their property without having to sell or move. The two main products are lifetime mortgages, where a loan secured against the property accumulates rolled-up interest until the property is sold, and home reversion plans, where a proportion of the property is sold to a provider in exchange for a cash lump sum or regular income, with the right to continue living in the property. Lifetime mortgages account for the vast majority of equity release taken out in the UK.
Equity release is regulated by the FCA and must be arranged through a qualified specialist adviser. The Equity Release Council, the industry body, sets standards for member products including a no-negative-equity guarantee, the right to remain in the property for life, and portability to a new property subject to lender approval.
How rolled-up interest compounds over time
The most important characteristic of a lifetime mortgage is that interest compounds over time with no monthly payments required. At a rate of 5.5 percent, a debt doubles in approximately 13 years. On a £100,000 lifetime mortgage taken at age 65, the outstanding balance grows to approximately £200,000 by age 78 and approximately £291,000 by age 85 — without a single monthly payment being made. The full balance plus compounded interest is repaid when the property is sold, typically on death or entry to long-term care.
The impact of compounding means that equity release taken at a younger age has significantly more time to compound before repayment. A £100,000 lifetime mortgage taken at age 55 will have a substantially larger balance at age 80 than the same mortgage taken at age 70, even at the same interest rate. Consider the likely timeline to repayment — typically the point at which the last surviving homeowner either dies or enters long-term care — when assessing the total cost.
Impact on inheritance and estate planning
Because the lifetime mortgage balance plus compounded interest is repaid from the sale proceeds of the property, equity release directly reduces the inheritance left to beneficiaries. On a property worth £400,000 at the time of sale, a lifetime mortgage with a £200,000 outstanding balance leaves £200,000 for the estate — half of what would have been available without equity release. Where the property has not appreciated in value or has depreciated, the reduction in inheritance can be even more significant.
Some lifetime mortgage products allow interest to be paid monthly, which prevents the balance from compounding and preserves more equity for inheritance. Drawdown lifetime mortgages allow cash to be taken in stages rather than as a lump sum, reducing the interest that accrues on unused funds. These product features can significantly affect the total cost and the remaining estate value — compare them carefully with the help of a specialist adviser.
Effect on means-tested benefits and care funding
Receiving a cash lump sum from equity release can affect eligibility for means-tested benefits including Pension Credit, Council Tax Reduction, and Universal Credit. The cash sum received may count as capital for benefit purposes, potentially taking the recipient above the capital threshold for benefit eligibility. If the cash remains unspent, it continues to count as capital. Spending the equity release proceeds on home improvements, debt repayment or gifts may affect the treatment differently — seek benefits advice before proceeding.
For long-term care funding, local authority means testing assesses whether a property has been depletively transferred before the assessment — gifts of equity or proceeds to family members shortly before or after equity release may be treated as deliberate deprivation of assets, affecting the local authority's care funding contribution. The interaction between equity release, benefits and care funding is complex and specialist financial and legal advice is essential.
Alternatives to equity release
Before committing to equity release, consider whether alternative solutions meet the need at lower cost. Downsizing — selling the property and buying a smaller one — releases equity without ongoing interest costs and may be appropriate where the existing property is too large. A retirement interest-only mortgage allows homeowners aged 55 and over to borrow against the property with monthly interest payments, preventing the balance from compounding. A standard remortgage may be available to older borrowers if retirement income is sufficient to service repayments. Family lending — borrowing from family members — may be appropriate in some circumstances.
Equity Release: How £100,000 Lifetime Mortgage Grows Over Time at 5.5%
| Year | Age (taken at 65) | Outstanding Balance | Property at £400,000 — Remaining Equity |
|---|---|---|---|
| Year 0 | 65 | £100,000 | £300,000 |
| Year 5 | 70 | £130,696 | £269,304 |
| Year 10 | 75 | £170,814 | £229,186 |
| Year 13 | 78 | £200,000 (approx) | £200,000 |
| Year 15 | 80 | £223,248 | £176,752 |
| Year 20 | 85 | £291,776 | £108,224 |
| Year 25 | 90 | £381,339 | £18,661 |
Source: Illustrative only at 5.5% compound interest. Actual rates vary. Property value assumed constant.
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Disclaimer Equity release is a regulated financial product that requires advice from an FCA-authorised specialist. This article is for information only. Kael Tripton Ltd is not regulated by the FCA. |
Frequently asked questions
What is the no-negative-equity guarantee?
The no-negative-equity guarantee, required by the Equity Release Council for all member products, ensures that the amount owed on a lifetime mortgage can never exceed the value of the property when it is sold. Even if compounded interest causes the debt to exceed the property value, the lender cannot pursue the estate for the excess. Check that any product you consider carries this guarantee.
Can I repay a lifetime mortgage early?
Most lifetime mortgages can be repaid early, but early repayment charges typically apply. These can be significant — fixed early repayment charges of 5 to 25 percent of the outstanding balance are common in the first years of a product. Some products offer downsizing protection allowing penalty-free repayment if the property is sold to downsize after a minimum period.
Will equity release affect my benefits?
A lump sum received from equity release may count as capital for means-tested benefit purposes, potentially affecting Pension Credit, Council Tax Reduction and other means-tested benefits. Seek benefits advice before proceeding to understand how the equity release proceeds will be treated for your specific benefits position.
Can I still leave my home to my children if I have equity release?
Yes, subject to the outstanding balance being repaid from the sale proceeds. The estate receives whatever is left after the mortgage is repaid. Some products allow ring-fencing of a proportion of the property value for inheritance — check whether this feature is available and at what cost.
Is equity release right for me?
Equity release is appropriate for some homeowners in specific circumstances but is not suitable for everyone. The FCA requires that equity release is arranged through a qualified adviser who must consider your overall financial position, available alternatives and the long-term implications before making a recommendation. The Equity Release Council also recommends that family members are involved in the decision. Independent legal advice is required before completing an equity release plan.
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Sources FCA: Equity Release |
