Last reviewed: June 2026
TL;DR- Equity release allows homeowners aged 55 or over to access property wealth without selling or moving.
- The two main products are the lifetime mortgage (a loan secured against the property, typically with rolled-up interest) and the home reversion plan (selling a share of the property to a provider in exchange for a lump sum or income).
- The Equity Release Council sets voluntary standards including the no-negative-equity guarantee for member providers.
- Equity release reduces the value of the estate passed to beneficiaries and may affect means-tested benefits - independent advice is mandatory under FCA rules.
What Is Equity Release?
Equity release is a category of financial products that allow homeowners aged 55 and over to access the value tied up in their property without selling it or moving out. The products are designed for later-life borrowers who own their home outright or have significant equity but want to access cash for retirement income, home improvements, gifts to family, or other purposes.
Equity release products are regulated by the FCA. Independent financial advice from a regulated equity release adviser is mandatory before any equity release product can be taken. The Equity Release Council is a trade body that sets voluntary standards for its members, including the no-negative-equity guarantee.
Lifetime Mortgages
A lifetime mortgage is the most common form of equity release. The homeowner takes a loan secured against their property. Unlike a standard mortgage, no monthly payments are made (in the most common structure). Instead, interest rolls up and compounds over the life of the loan. The loan plus all accrued interest is repaid when the homeowner dies or moves permanently into long-term care, typically from the sale proceeds of the property.
Some lifetime mortgages allow the homeowner to make voluntary interest payments to reduce the compounding effect. Drawdown lifetime mortgages allow funds to be released in stages rather than in a lump sum, reducing the interest accrual rate. The no-negative-equity guarantee (required by Equity Release Council member providers) ensures the total loan repayable can never exceed the property's sale proceeds.
Home Reversion Plans
A home reversion plan involves selling a percentage of the property to a provider in exchange for a lump sum or regular income. The homeowner continues to live in the property rent-free for life. When the property is eventually sold, the provider receives their percentage of the sale proceeds. The homeowner retains ownership of the unsold percentage and that share passes to beneficiaries.
Home reversion plans are less common than lifetime mortgages. The lump sum received is typically significantly below the market value of the share sold, reflecting the provider's cost of deferring their return until the homeowner dies or moves.
Impact on Estate and Benefits
Equity release reduces the value of the estate passed to beneficiaries, because the loan (with rolled-up interest on a lifetime mortgage) or the share sold (on a home reversion) must be repaid from the property sale before beneficiaries receive anything. Interest compounding can significantly erode the estate value over a long period. The effect on means-tested benefits - such as pension credit and council tax support - should be assessed as a lump sum received from equity release may initially affect benefit entitlement. An equity release adviser will assess these implications as part of the advice process.
Frequently Asked Questions
What is the no-negative-equity guarantee?
The no-negative-equity guarantee, required from Equity Release Council member providers, means the total amount owed (loan plus rolled-up interest) on a lifetime mortgage can never exceed the proceeds from the sale of the property. Even if the property falls in value and the compounded loan exceeds the sale price, the homeowner or their estate is not liable for the shortfall. This is an important protection, particularly if the homeowner lives to a very old age and interest has compounded for many decades.
Can I move house with a lifetime mortgage?
Most lifetime mortgage products are portable - the loan can be transferred to a new property if the new property meets the provider's eligibility criteria. If the new property is lower value and cannot support the existing loan amount, partial repayment may be required. The terms of the specific product should be checked for porting provisions before purchasing an equity release product.
Can I repay a lifetime mortgage early?
Most lifetime mortgages can be repaid early, but early repayment charges (ERCs) typically apply during fixed-rate periods. The structure of ERCs varies by product - some use a percentage-based charge, others use a gilt-based formula. The ERC position should be considered carefully as part of the advice process, particularly if there is any prospect of the loan being repaid early (for example, by inheritance or sale of another asset).
Does equity release affect inheritance tax?
Equity release reduces the value of the estate and therefore may reduce the inheritance tax liability. However, the interaction between equity release, estate planning and IHT is complex. For example, gifting the equity release proceeds to family members creates potentially chargeable transfers for IHT purposes. The IHT and estate planning implications should be discussed with both an equity release adviser and a solicitor or tax adviser.
