What Is Equity Release — and Is It the Right Choice for You?

Equity release allows homeowners aged 55 or over to unlock some of the value tied up in their property — without having to sell up or move out. For some people it is a genuinely useful financial tool. For others, the long-term costs make it a poor choice. The key is understanding exactly how it works before you commit.

What is equity release and how does it work?

Equity release is an umbrella term for financial products that let you access the value (equity) in your home while continuing to live in it. The two main types are:

• Lifetime mortgage — you borrow a lump sum (or smaller amounts over time) secured against your home. Interest is charged, and the loan plus all the accumulated interest is repaid when you die or move into long-term care. You never make monthly repayments. This is by far the most common type.
• Home reversion plan — you sell a share of your home to a provider in exchange for a lump sum or regular income. You keep the right to live there rent-free for life. When the property is eventually sold, the provider takes their percentage of the proceeds. These are much less common.

How much can you borrow with a lifetime mortgage?

The amount depends on your age and the value of your property. Older applicants can typically borrow a higher percentage. As a rough guide:

• Age 55: around 20–25% of the property value
• Age 65: around 30–35%
• Age 75: around 40–45%
• Age 85+: potentially 50% or more

On a home worth £300,000, a 65-year-old might be able to release around £90,000–£105,000.

Why can the total debt grow so quickly?

This is the most important thing to understand about lifetime mortgages: because you make no monthly repayments, the interest compounds — meaning it is added to the outstanding balance each year, and then interest is charged on that larger balance the following year.

An example: if you borrow £80,000 at a fixed interest rate of 5.5%, after 20 years the outstanding balance (including all compounded interest) would be roughly £233,000 — nearly three times the original loan. If the property value has not grown significantly in that time, there may be little equity left to pass on to your family.

Some modern lifetime mortgages allow you to make voluntary interest payments each month to slow the growth of the debt — worth considering if your budget allows it.

What are the safeguards you should look for?

Only use products from members of the Equity Release Council. Their standards require that:

• You retain the right to live in your home for life
• You have a no negative equity guarantee — meaning you will never owe more than the property is worth
• You have the right to move to a suitable new property and transfer the equity release product
• You receive independent legal advice before signing

The no negative equity guarantee is particularly important: without it, your estate could theoretically be left with a debt if property values fell.

What are the alternatives to equity release?

Before committing to equity release, it is worth considering whether other options might serve you better:

• Downsizing — selling and moving to a cheaper property releases equity with no ongoing debt
• Renting a room — the Rent a Room Scheme allows you to earn up to £7,500 a year tax-free from a lodger
• Benefits check — many older homeowners are not claiming everything they are entitled to (see our guide to benefits after 60)
• Unsecured personal loan — if you only need a smaller amount for a specific purpose and can make repayments, a straightforward loan may be cheaper
• Remortgaging — if you have an existing mortgage, switching may release some funds at a lower overall cost

Who should consider equity release?

Equity release tends to work best for people who:

• Own their home outright or with a small remaining mortgage
• Have limited other assets or income
• Want to stay in their home long-term
• Do not have a strong desire to leave the property to family
• Need a meaningful sum — not just a small top-up

It tends to be a poor fit for people with other assets they could liquidate, people who may need to move (to a care home, for example), or people who want to maximise what they pass on to children or grandchildren.

What should you do before applying?

The Equity Release Council recommends speaking to an independent financial adviser who specialises in equity release — not just a product provider. The advice session will typically cost a fee (around £500–£1,500), but it is money well spent given the scale of the commitment you are making.

You should also talk to your family. Equity release affects what you will be able to leave as an inheritance, and family members can sometimes help find alternatives that work better for everyone.