Equity Release explained: is it right for you?

For many retirees, most of their wealth is locked up in bricks and mortar. Equity release lets homeowners aged 55 and over unlock some of that value without selling up and moving out. It can fund retirement, help family, clear a mortgage, or pay for care — but it's a significant, largely irreversible decision, so it pays to understand exactly how it works before you go near it.

The two types

A lifetime mortgage is by far the most common form — over 99% of plans. You borrow against your home while keeping full ownership, and the loan plus interest is usually repaid only when the property is sold, typically after death or a move into long-term care. A home reversion plan is different: you sell all or part of your home to a provider for a lump sum or income, while keeping the right to live there rent-free for life. Reversion plans are far less common today, and you get well below market value for the share you sell.

How much can you release?

The amount is set mainly by your age and your home's value — the older you are, the higher the percentage you can borrow. As a rough guide, around a quarter of your home's value is available in your mid-50s, rising towards half in your late 70s and 80s. Most lenders require a minimum property value of about £70,000. Some offer enhanced terms (a higher amount or a better rate) if you have certain health conditions, since they affect life expectancy — which is why it's worth disclosing them.

The big trade-off: compound interest

Here's the catch that defines equity release. With most lifetime mortgages the interest isn't paid monthly — it's added to the loan and itself earns interest, year after year. Rates in 2026 are typically around 6.5%, fixed for life. That fixed rate is reassuring, but, because it's compounding, it means you can end up owing far more than you expected. See the example below.

The safeguards that make it safer than its reputation

Equity release has an old reputation from the unregulated plans of decades past. Today, plans from members of the Equity Release Council must meet five product standards that protect you:

• The right to remain in your home for life, or until you move into long-term care — no repayment obligations and no risk of repossession.
• A fixed or capped interest rate for life, so your borrowing is never hit by future rate rises.
• A no negative equity guarantee — you or your estate can never owe more than the property sells for, so no debt is ever passed to your family.
• The right to move to another suitable property, transferring the plan with you.
• The right to make penalty-free voluntary repayments (a standard since 2022), so you can reduce the loan and rein in the roll-up whenever you can afford to.

Modern flexibility changes the picture

Those last two points matter more than people realise. A drawdown lifetime mortgage lets you take your money in stages rather than all at once — you agree a reserve, but interest only accrues on what you've actually drawn, which dramatically slows the compounding. And because voluntary repayments (typically up to 10% of the loan a year) are penalty-free, even £100 a month can meaningfully cut what's eventually owed. The old image of a debt that inevitably balloons out of control is no longer the whole story — provided the plan is used deliberately.

The impact on benefits and inheritance

Equity release doesn't affect your State Pension, which isn't means-tested, but the cash you release can affect means-tested benefits such as Pension Credit and Council Tax Reduction if it lifts your savings above £10,000 (reduced) or £16,000 (stopped). Taking a drawdown facility rather than a big lump sum helps manage that. It also reduces the inheritance you leave, since the loan is repaid from your estate. It's worth weighing against the inheritance tax picture, as spending or gifting home equity can also reduce a future IHT bill.

Consider the alternatives first

Equity release is rarely the only option, and often not the cheapest. Before proceeding, weigh up downsizing to a smaller home (which frees capital without any interest), a Retirement Interest-Only (RIO) mortgage where you pay the interest monthly and the capital is settled later, borrowing from or gifting within the family, or simply drawing on other savings and pensions first. A good adviser will insist on ruling these out before recommending equity release — and it's often relevant when funding care at home.

Getting advice is not optional

Equity release is heavily regulated for good reason. It can only be arranged through an FCA-regulated equity release adviser, who is legally required to check it's suitable for you, and you must also take independent legal advice before completing. Involve your family in the conversation too — it affects their inheritance, and they'd usually rather be part of the decision than surprised by it. You can model the effect on your own numbers first in the Equity Release Calculator.