Equity Release UK 2026: How Lifetime Mortgages and Home Reversion Plans Work

What Is Equity Release?

Equity release is a financial product that allows homeowners aged 55 and over to access the wealth tied up in their property without having to sell or move. Equity release products provide cash from the property's value, with repayment deferred until the property is sold - typically when the homeowner dies or moves into long-term care.

The two main types of equity release are lifetime mortgages and home reversion plans. Both are regulated by the FCA and must meet the standards set by the Equity Release Council. The choice between them depends on the amount required, the homeowner's circumstances, and how much of the property they wish to retain.

Equity release is not the same as remortgaging to release equity. In a standard remortgage, the borrower makes monthly repayments. In equity release, no monthly repayments are required - interest either rolls up on a lifetime mortgage or no interest is charged because part of the property has been sold in a home reversion plan.

How Lifetime Mortgages Work

A lifetime mortgage is a loan secured against the home, available to homeowners aged 55 and over. Interest accrues on the loan throughout the term, and both the loan and accumulated interest are repaid when the property is sold - typically on death or entry to long-term care.

Most lifetime mortgages operate on a roll-up basis where interest compounds and is added to the outstanding balance each year. Because interest compounds, the outstanding balance can grow significantly over time. At a 5 percent interest rate, a 100,000 pound lifetime mortgage doubles to 200,000 pounds in approximately 14 years through compound interest roll-up.

Lifetime mortgages that comply with Equity Release Council standards include a no-negative-equity guarantee, ensuring the repayment amount never exceeds the sale proceeds of the property. This protects beneficiaries from inheriting a debt if property values fall significantly.

How Home Reversion Plans Work

A home reversion plan involves selling a portion or all of the property to a reversion company in exchange for a lump sum or regular payments, while retaining the right to live in the property rent-free for life. The reversion company receives its agreed share of the property value when the home is eventually sold.

The purchase price paid by the reversion company is below market value - typically 20 to 60 percent of the open market value of the share sold - because the reversion company must wait an uncertain period to realise the full value. The older the homeowner, the closer the price to market value, as the expected waiting period is shorter.

Home reversion plans are less widely available than lifetime mortgages and are taken out by a smaller proportion of equity release customers. They may be appropriate for homeowners who want to guarantee a specific proportion of the property remains for inheritance purposes, as the share not sold remains entirely theirs.

Equity Release Costs and Interest Rates

Lifetime mortgage interest rates are fixed for life in most cases, providing certainty about the rate at which the outstanding balance will grow. As of mid-2026, lifetime mortgage rates are available from approximately 5 to 7 percent, depending on the lender, the loan-to-value, and the product features.

Arrangement fees for equity release products are typically 1,500 to 3,000 pounds, including advice fees, valuation, and legal costs. Independent financial advice is mandatory for equity release products - borrowers must receive advice from an FCA-authorised equity release specialist before completing any equity release transaction.

The long-term cost of equity release must be modelled carefully. A 100,000 pound lifetime mortgage at 5.5 percent over 20 years grows to approximately 291,000 pounds through compound interest. The impact on the estate and on any inheritance tax calculation must be factored into the decision.

Equity Release Risks and Alternatives

The primary risk of equity release is the erosion of the estate through compound interest roll-up. Beneficiaries who would otherwise inherit the full property value may inherit significantly less if a lifetime mortgage has been in place for many years. Discussing equity release plans with family members who may be affected is strongly recommended before proceeding.

Alternatives to equity release include: downsizing to a smaller property and investing the proceeds; a retirement interest-only mortgage, which requires monthly interest payments but prevents the balance growing; renting out a room under the Rent a Room scheme to generate income; or accessing other assets and savings before using property equity.

Equity release is most appropriate when the homeowner has significant property wealth, limited other assets, and a genuine need for additional cash that cannot be met through other means. It is not appropriate as a first resort for borrowers who have other assets, income solutions, or can meet needs through downsizing.

Finding the Right Equity Release Product

Equity release advice must be provided by an FCA-authorised adviser who is qualified in equity release. The Equity Release Council publishes a directory of member advisers who commit to its standards, including the no-negative-equity guarantee requirement and independent legal advice for customers.

Comparing equity release products across multiple lenders is important, as rates and product features vary. The total interest cost over an expected term, the flexibility to make partial repayments, the drawdown facility (access to further funds after the initial release), and inheritance protection features all affect the overall suitability.

Borrowers should obtain a written illustration showing the projected outstanding balance at various future dates, based on the chosen interest rate and an assumed life expectancy. This illustration makes the long-term cost of equity release visible and enables an informed comparison with alternative options.

Frequently Asked Questions

Last reviewed June 2026 · Kael Tripton Editorial