Proper news from Britain - News from Britain you won’t find anywhere else. Not the tosh the big media force-feed you every day!
Products featured in this article are independently selected by This is Money's specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
Equity release allows older homeowners to cash in on the value of their home to help fund retirement.
It could be for you if you own your home and are looking for some extra cash in your pension years, or running up to them, but there are some important things to consider first.
Equity release works by giving you a loan based on the value of your home, which needs to be repaid – plus interest – on the sale of your property when you die or go into long-term care.
According to the Equity Release Council’s latest quarterly report, more homeowners are choosing equity release, with a 10 per cent year-on-year increase in total lending for the second quarter of 2025.
It’s not without risks and will reduce the size of the estate you leave behind. But getting a loan secured on your property can give you tax-free funds to pay down debts, renovate your property or simply enjoy later life while staying in your existing home.
Rather than it being paid off through monthly payments, equity release interest 'rolls up' or accumulates over time. This means interest builds on top of previously accrued interest, so you need to consider loans carefully and secure the best equity release rate.
There are other options to consider, such as downsizing, remortgaging or taking out a retirement interest-only mortgage (Rio).
All this means that if you do decide to release equity from your home, getting proper advice and choosing the right product and provider is key. We explain how equity release works and what you need to know.
What is equity release?
Equity release loans, also known as lifetime mortgages and home reversion plans, allow homeowners to get a tax-free loan worth up to 60 per cent of their home's value, while still remaining the sole owner.
You can use the money for anything you like, but popular uses include:
- paying off debts
- renovating your home
- gifting money to friends and family
- funding holidays or other hobbies in retirement
Lifetime mortgages
Under a lifetime mortgage, the product that makes up the vast majority of equity release loans, the money only needs to be paid back via the sale of the house when the borrower dies or goes into long-term care.
Some plans allow borrowers to pay back some of the money earlier if they choose, but there may be early repayment charges.
All customers that have plans with providers that are members of the Equity Release Council are guaranteed the right to make penalty-free partial repayments of their loans.
It's important to understand that equity release will reduce the value of your estate, and may affect your entitlement to means-tested benefits now or in the future.
Lifetime mortgages, the most popular form of equity release, are more flexible than they once were, allowing people to draw cash only when they need it and in some cases pay interest if they choose to limit how debt rolls up.
To help those considering equity release to make an informed decision, This is Money has chosen to introduce its readers to Royal London Equity Release Advisers.
The equity release calculator from This is Money and Royal London Equity Release Advisers* allows you to find out how much equity you could release from your home and get further information.
A note on home reversion plans...
Home reversion plans are a much less popular product than lifetime mortgages. This type of equity release is where the borrower sells a percentage share of their home's value to a lender for less than its market value.
They get an agreed amount as a lump sum, but this is usually a lot less than the value of the share they have sold. They are then allowed to stay on as a tenant, but pay no rent, until they die or go into long-term care.
The property is then sold and the lender gets its percentage share from the sale. As it’s a percentage share, the amount the lender takes may have increased or decreased since the plan was taken out.
If it increases over many years, the initial lump sum might start to look like expensive borrowing considering the profit that the lender is making.
And if the value of the home decreases, the borrower's estate could be left owing more money to the lender.
Lifetime mortgages are a more popular and less risky option, so the rest of this guide focuses on those.
How is equity release interest calculated?
With a lifetime mortgage, interest accumulates on the outstanding balance every month and is added to the overall loan amount.
Any unpaid interest is added to the loan, meaning the size of the loan increases over time. The longer someone lives, the more interest will accrue.
However, the total interest charged will be less if you pay off some of the balance or interest as you go, and more if you don’t make any payments.
Interest rates on equity release products are higher than on mainstream mortgages and currently range between about 6 and 9 per cent.
When browsing equity release rates, the APR shows the annual cost of borrowing including additional costs. The AER – annual equivalent rate – shows the overall cost of borrowing when the interest is compounded each year.
It’s a good idea to opt for a plan where the interest rate is fixed for the life of the loan, as this gives you certainty about the amount you owe.
If the rate on a loan is variable, make sure it has a cap and that you’d be able to pay that increased amount. There are also arrangement fees to consider when you first take out the equity release loan.
How much can I borrow using equity release?
The maximum loan amount is usually up to 60 per cent of the home's value. Like standard mortgages, equity release loans come with different loan-to-value bands, and equity release interest rates are generally lower for those that are borrowing less.
For example, if your home was worth £200,000 and you wanted to release £80,000 of equity, you would be taking out a loan for 40 per cent of what the home is worth. In other words, your loan-to-value would be 40 per cent.
As the loan only needs to be repaid after the borrower dies or enters long-term care, equity release lenders don’t carry out the same kind of affordability checks that borrowers must go through when applying for a traditional mortgage.
However, from the borrowers' point of view, it’s important to make sure you’ll still have enough money for retirement, and that you plan how to spend the equity release money so you don't burn through it too quickly.
Equity release can affect borrowers' eligibility for certain means-tested benefits, for example universal credit and council tax reduction. However, it doesn’t affect the state pension.
Borrowers also need to ensure they’re comfortable with the reduced estate that they’ll leave behind for their loved ones, once the equity release lender has been paid back.
Who qualifies for equity release?
You can take out a lifetime mortgage if you:
- Are a homeowner aged 55 or over.
- Own your home outright.
- Use your home as your main residence.
If you still have a mortgage on your home when you take out the equity release loan, you must use part of the loan to pay off your mortgage in full.
You must also use the home as your main residence, so equity release may not be suitable for ex-pats who spend the majority of their time abroad, or those planning to move in with family in their later years.
Anyone taking out an equity release loan is legally required to seek professional financial advice first to check that it’s suitable.
Your equity release lender should provide this, but you could also look for independent financial advice as well.
Drawdown or lump sum?
Homeowners can choose a drawdown lifetime mortgage or a lump sum lifetime mortgage.
Drawdown equity release mortgages allow you to take cash out of your home as and when you need it rather than in a single lump sum.
This means you only pay interest on the money you draw down.
Lump sum equity release mortgages, meanwhile, allow you to access all the cash from your home in one go.
Alternatively, you can opt for products which allow you to pay just the interest each month.
There are also products that allow you to pay off both the interest and the loan amount each month.
Your equity release adviser should listen to your requirements and help you decide on the right product for you.
What are the alternatives to equity release?
The decision to release cash from your home should never be taken lightly. There may be better options including:
- Selling up and downsizing to a smaller property, which can free up cash without any interest payments or charges attached.
- A retirement interest-only mortgage, which allows older homeowners to only pay the interest on their home loan until they die or go into long-term care. The outstanding borrowing is then paid off by the sale of their home.
It’s also possible for those in later life to stay in their own home and continue with their existing mortgage, or remortgage – as long as they have the financial means to do so.
If they needed to access some cash from their home, they could remortgage and increase the length of the remaining term, spreading the remaining payments over a longer period of time.
They could also remortgage at a higher loan-to-value to release some equity from their property, though this will increase the time it takes to pay off the loan.
What if I want to move or pay back the equity release loan?
All products approved by the Equity Release Council must allow borrowers to move home, as long as their lender accepts that the new property is a suitable continuing security for the loan.
This usually means that it’s the type of property the lender would accept if it was setting up a new equity release plan.
In most circumstances, you’ll simply carry over the loan from your old property to the new one and the terms of the equity release plan will remain the same.
If you have a lifetime mortgage and you want to move to a property with a lower value, then the lender may require a partial repayment of the loan to keep it within its lending limits at the time.
Equity Release Council-approved lenders should not impose early repayment charges if you move your equity release plan to another home.
Usually, paying back an equity release loan in full before you pass away or go into long-term care would incur a penalty known as an early repayment charge. Any charges should be set out in the terms of your loan and could reach thousands of pounds.
However, some equity release mortgages have 'downsizing protection', which means that the customer can pay their equity release loan back in full if they move to a smaller home, without any charges.
What if my home sells for less than the loan amount?
This is something borrowers need to be aware of, although it’s relatively unlikely.
As the maximum borrowed via equity release is 60 per cent, it would need to lose at least 40 per cent of its value before you were in negative equity.
However, if this is something that concerns you it is worth knowing that products offered by Equity Release Council members must have a no negative equity guarantee.
This means that, if the money from the eventual sale of the home is not enough to repay the outstanding loan, the borrower or their estate will not need to pay any extra.
However, in such an instance those inheriting the estate would be left with nothing from the value of the former family home.
Five points to consider before going ahead with equity release...
1. Know your goals. Make sure you have a clear idea on your key goals when embarking on this path.
Your personal priorities and views on the direction of house prices will materially influence what’s right for you. Your equity release adviser should be able to guide you. If not, seek alternative specialist advice.
2. Speak to your family. This can avoid any unnecessary family surprises, for example their inheritance being much lower than they anticipated.
Family members may also be able to suggest alternatives such as lending you the money themselves, to be paid back from your estate when you die.
3. Get professional advice. It can be difficult to find the best equity release deal yourself. Not only that, many schemes are only available through authorised intermediaries. It’s a good idea to find an independent specialist in equity release advice.
You should find out what they charge and whether they compare all the deals on the market. Also are they able to advise on pensions, entitlement to welfare benefits and long-term care funding? Some of this may be relevant to you now or in the future and the wrong advice could cost you dearly.
Your adviser should help you understand the product, talking you through the plan's features in a way that you can understand.
You will also need a solicitor – if you have one ask if they are familiar with equity release paperwork. Otherwise your equity release adviser should be able to introduce you to a firm that understands equity release.
4. Only borrow what you need. Borrow only as much as you intend to spend or give away. You will earn much less interest from cash left on deposit than the interest you will have to pay for borrowing it in the first place. It could also cut your entitlement to means-tested benefits.
5. Find out about fees. Ask your adviser about equity release fees – and make sure you get value for money. The effect of compound interest on an equity release plan is important to be aware of.
Interest rolling up on equity release can be expensive. Say you borrowed £50,000 at 5 per cent. In the first year, you would accrue £2,500 interest.
In the second year, you would then pay interest on the original £50,000 plus on the extra £2,500 that your debt had increased by, so total interest of £2,625. This is then added to your debt, too, bringing it to £55,125 at three years in. This continues and after ten years you will owe £83,350.
You should also pay close attention to the APR (Annual Percentage Rate) which is the total cost of borrowing over a year – including fees.
> Find out how much equity you could release from your home*