Lifetime Mortgage vs Home Reversion: A UK Comparison

UK equity release comes in two structurally different forms. A lifetime mortgage is a long-term loan secured against the home; the borrower stays the legal owner. A home reversion plan is a sale of part or all of the home to a provider; the homeowner gives up that ownership share in exchange for a lump sum and the right to live in the property under a lifetime lease. Both products are designed to give a retiree access to capital tied up in their home, but the mechanics, costs, and consequences are very different.

This article sets the two side by side: what each does, how they price, how they affect the estate, and where each product fits in a realistic UK retirement plan.

The mechanics, side by side

Lifetime mortgage

A lifetime mortgage is a regulated loan. The lender advances capital and registers a charge over the property. The borrower remains the legal owner and continues to enjoy any future capital appreciation in the property. Interest accrues, typically at a fixed rate set at outset, and by default rolls up: it is added to the outstanding balance rather than paid in cash each month. Voluntary interest payments (or partial capital repayments, within set limits) are usually permitted without penalty. The loan plus accrued interest is repaid when the property is sold, on the borrower's death, or on permanent move into care.

Home reversion plan

A home reversion plan is a sale of an ownership share in the property to a provider. The homeowner receives a lump sum (or, in some plans, a guaranteed income for life) and grants the provider a future interest in the property's value. The homeowner retains the right to live there rent-free for life under a lifetime lease, subject to keeping the property insured and in good repair. When the homeowner dies or moves permanently into care, the property is sold and the provider receives the agreed share of the sale proceeds.

Pricing comparison

Lifetime mortgage pricing

Lifetime mortgages are priced as loans. The headline metrics are the fixed annual interest rate (typically a multiple percentage points above the same-term gilt yield, reflecting credit and longevity risk) and the maximum loan-to-value (LTV) percentage available, which depends mainly on the youngest borrower's age. Other factors include the property's value, location, and condition.

The compound effect is the dominant driver of long-term cost. At 6 percent annual interest with no repayments, a 50,000 pound loan grows to roughly 90,000 pounds in 10 years and roughly 160,000 pounds in 20 years. Voluntary interest payments stop or slow this growth.

Home reversion pricing

Home reversion providers pay a percentage of the current market value of the share purchased. The percentage is the headline pricing metric and depends on the homeowner's age and gender-blind life expectancy. A typical 70-year-old might receive 30 to 40 percent of the market value of the share sold; an 85-year-old might receive 50 to 60 percent. The discount reflects the provider's wait: the longer the expected wait before the property is sold, the larger the discount.

The trade-off is that there is no compounding cost to the homeowner. Once the share is sold, the provider's stake does not grow other than through property appreciation on its share. The homeowner's retained share also benefits from any property appreciation on that share.

Inheritance impact

Lifetime mortgage

The loan plus accrued interest reduces the net estate value. The remaining equity after the loan is repaid passes to the beneficiaries under the will. If the property has appreciated significantly and the borrower paid down interest, the net residual can still be meaningful. If interest has been allowed to compound for many years and property growth has been weak, the residual can be small.

The no-negative-equity guarantee (provided by Equity Release Council member products) ensures that the loan plus interest cannot exceed the property's sale value. The estate is never asked for shortfall from other assets.

Home reversion

Only the homeowner's retained share of the property passes to the beneficiaries. If a 40 percent share was sold, the beneficiaries receive 60 percent of the property's eventual sale value plus appreciation on that 60 percent. The amount paid by the provider on day one is, by design, well below 40 percent of current market value, so the implicit cost of the contract is the difference between the lump sum received and the market value of the share given up, paid in the form of the provider's eventual share of the sale.

Flexibility and reversibility

Lifetime mortgage

Lifetime mortgages typically include early repayment charges that apply for a defined period (often 8 to 15 years from inception). The charge can be a fixed declining percentage or a gilt-linked figure. Some plans waive the ERC on the death of a borrower or on move into care. Where the borrower wants to repay early (for example, from an inheritance or unrelated lump sum), the ERC can be significant.

Property moves are permitted under Equity Release Council standards subject to the new property being acceptable security. Drawdown structures allow capital to be released in stages, which avoids unnecessary interest on funds not yet needed.

Home reversion

Home reversion is materially less flexible. Buying back the share sold is sometimes possible but is priced on a current valuation, which (where the property has appreciated and the homeowner is older) can be substantially more than the original lump sum received. Moving to a smaller property usually triggers a partial settlement.

Means-tested benefits interaction

Both products release capital that can affect means-tested benefits, but the mechanics differ. A lifetime mortgage lump sum sitting in cash is counted as capital for benefit purposes. A home reversion lump sum is also counted. Drawdown lifetime mortgages can mitigate this by releasing smaller amounts as needed, keeping the capital position closer to the relevant benefit threshold.

Pension Credit and Council Tax Reduction are the two means-tested benefits most often affected. Where the homeowner relies on either, careful structuring of the release is essential and forms a major part of regulated advice.

Consumer protections common to both

The Equity Release Council standards apply to member products of both types and include the no-negative-equity guarantee (for lifetime mortgages), the right to remain in the property for life, the right to move subject to acceptable security, and fixed or capped interest rates on lifetime mortgages. The FCA regulates the providers and the regulated advice process is mandatory before either product can be taken out.

When each product fits

Lifetime mortgage

Lifetime mortgages fit where the homeowner wants to retain ownership and any future capital appreciation, wants the flexibility of drawdown or voluntary repayments, expects to potentially repay early from another source, or expects to move home in future. The compound interest cost is the main downside; voluntary interest payments mitigate it materially.

Home reversion

Home reversion fits a narrower set of cases. It can suit a homeowner who is older (so the provider's discount is smaller), who has no realistic prospect of repaying or moving, who wants to lock in a defined share for the estate rather than be exposed to compound interest growth, and who values the certainty that the provider's stake does not grow other than through property appreciation.

Risks and downsides to weigh

Lifetime mortgages carry compound interest risk: the debt can grow faster than the property's value if rates are high and the period is long. Home reversion plans carry deep-discount risk: the share sold is paid for at well below current market value, and the homeowner cannot easily reverse the sale.

Both products reduce inheritance materially and interact with care funding (deferred payment agreements may not be available where significant equity is encumbered or sold) and with the residence nil-rate band. Both require regulated advice and specialist legal advice.

Pricing structures in worked detail

For a lifetime mortgage, the principal pricing variables are the fixed annual interest rate (typically 4.5 to 7.5 percent depending on lender and product variant in 2026), the maximum loan-to-value (LTV) percentage of property value (typically 25 percent at age 55 rising to 50 percent or more at age 80+), and any arrangement fees. A 65-year-old with a 500,000 pound home borrowing 30 percent of value (150,000 pounds) at 6.5 percent rolls up to roughly 528,000 pounds after 20 years; the no-negative-equity guarantee caps the liability at the eventual sale value.

For a home reversion plan, the pricing is the percentage of market value paid for the share sold. A 70-year-old selling a 50 percent share of a 500,000 pound home typically receives 30 to 40 percent of the value of the share sold (75,000 to 100,000 pounds); an 80-year-old typically receives 45 to 55 percent (112,500 to 137,500 pounds); an 85-year-old typically receives 50 to 60 percent (125,000 to 150,000 pounds). The percentage rises with age because the provider's expected wait before realising the share is shorter.

Inheritance trajectories side by side

Consider the same 500,000 pound home and a 65-year-old homeowner who lives to age 90 (25 years from outset). Under a 150,000 pound lifetime mortgage at 6.5 percent with no voluntary repayments, the loan grows to roughly 723,000 pounds. If the property has grown at 3 percent annually to roughly 1,047,000 pounds at sale, the residual after the loan is repaid is roughly 324,000 pounds, of which the estate inherits the full amount subject to the no-negative-equity guarantee.

Under a 50 percent home reversion sold at age 65 for 30 percent of value (75,000 pounds released), the property at age 90 is worth 1,047,000 pounds. The provider receives 50 percent (523,500 pounds); the homeowner's estate receives the other 50 percent (523,500 pounds). The home reversion route delivered more lifetime cash (75,000 pounds versus 150,000 pounds borrowed but only 150,000 pounds spent if all of it was released as a lump sum) but materially less total inheritance (523,500 pounds versus 324,000 pounds under lifetime mortgage in this specific scenario). The numbers reverse for shorter durations or higher property growth rates.

The market concentration difference

The UK lifetime mortgage market is served by roughly 15 active lenders including Aviva, Just, More 2 Life, LV=, Legal & General Home Finance, and Canada Life Home Finance. The home reversion market is served by only a small handful of providers, including Bridgewater Equity Release and Crown Equity Release. The narrower home reversion market reduces price competition, and the new business volumes reflect the structural difference: lifetime mortgages account for the overwhelming majority of UK equity release new business each year. Home reversion survives in a niche of older, inheritance-focused homeowners who specifically want the certainty of a fixed retained share.

When home reversion still makes sense

Home reversion fits a narrow set of cases. It is most useful where: the homeowner is older (so the discount to current market value is smaller); the homeowner has no realistic prospect of repaying or moving; the homeowner wants to lock in a defined share for the estate rather than be exposed to compound interest growth; and the homeowner expects property values to rise meaningfully over the contract's life (so the retained share's value grows accordingly).

For a homeowner aged 85 with a high-value home and a strong desire to ensure that 50 or 60 percent of the eventual sale value reaches the estate, home reversion delivers that certainty in a way that a lifetime mortgage cannot. The trade-off is the very deep discount paid for the share sold today.

When lifetime mortgage dominates

For most modern UK equity release decisions, the lifetime mortgage dominates because it offers greater flexibility, broader provider choice, and (with voluntary interest payments or a drawdown structure) better long-term economics. It retains ownership, preserves any claim on property appreciation, and allows the strategy to adapt over time. Home reversion is a more specialised product for a smaller set of circumstances.

Switching and reversibility

A lifetime mortgage can be refinanced to a different lifetime mortgage at then-current rates, subject to any early repayment charge. Borrowers who took out a high-rate lifetime mortgage during the pre-2022 low-yield period sometimes find refinancing to a lower rate makes sense once the ERC period has expired. Unwinding a home reversion is much harder because it requires buying back the share at current market value, which (where the property has appreciated and the homeowner is older) is usually substantially more than the original lump sum received. Most home reversion plans are effectively permanent.

Important: This article is for general information and does not constitute regulated financial advice. Equity release products are lifetime commitments with long-term consequences for the estate, benefits, and care planning. Regulated advice from an FCA-authorised firm holding equity release permissions is required before taking out either type of plan. Specialist legal advice is also essential.

Frequently asked questions

Which is more common in the UK, lifetime mortgage or home reversion?

Lifetime mortgages account for the large majority of new UK equity release business each year. Home reversion is a much smaller niche and a shrinking share of the market. The flexibility of modern lifetime mortgages, particularly drawdown and voluntary interest payments, has widened their appeal relative to reversion.

Do I keep ownership of my home with both products?

With a lifetime mortgage, yes: the borrower remains the legal owner and the lender simply has a charge against the property. With a home reversion plan, you sell the share to the provider; the provider becomes the legal owner of that share and the homeowner retains a lifetime lease over the property.

How is interest charged on a lifetime mortgage?

Interest is typically fixed for life at a rate set at outset. By default, it rolls up: it is added to the outstanding balance each year and compounds over time. Most modern plans allow voluntary interest payments, which can stop or slow the roll-up without committing to a fixed monthly amount.

Why does a home reversion pay less than market value?

The provider is buying a future interest. It pays today but receives nothing until the homeowner moves out or dies. The discount reflects the wait, the homeowner's life expectancy, and the provider's cost of capital. A 70-year-old typically receives 30 to 40 percent of the market value of the share sold; an 85-year-old typically receives 50 to 60 percent.

Can I switch from one product to the other later?

Switching is rarely simple. A lifetime mortgage can be repaid (subject to any early repayment charge) and replaced with a different lifetime mortgage at then-current rates. Unwinding a home reversion is much harder because it requires buying the share back at current market value, which is usually significantly more than the original lump sum received.

What happens if the property falls in value?

With a lifetime mortgage from an Equity Release Council member, the no-negative-equity guarantee ensures the borrower or estate never owes more than the property's sale value. With a home reversion plan, the homeowner's retained share is exposed to falling value, but the share already sold is the provider's exposure.