What is equity release?

Key takeaways

• Equity release lets homeowners typically aged 55+ unlock wealth from their property without moving
• There are three main types: lifetime mortgages, home reversion schemes, and private equity release arrangements
• You can typically release between 18% to 50% of your property's value
• The money you receive is tax-free as it's technically a loan, not income
• Many plans include a 'no negative equity guarantee' so you'll never owe more than your home's value
• It's essential to seek financial advice before proceeding, as equity release isn't suitable for everyone

Equity release explained

Equity release is when you release money from your property so that you can make a big purchase, pay off an existing mortgage, or give generously to loved ones. For most plans, you must be at least 55, giving later-life homeowners a way to unlock wealth tied up in their home without moving.

Rather than using savings or taking out a personal loan, it’s a type of financial product that lets you make the most of your property wealth by releasing the value tied up within it. It’s normally a popular option for those in later life who’ve seen their properties surge in value over the years.

The demand for equity release products is growing rapidly. In 2025, over-55s utilised lifetime mortgages in record numbers, with total annual lending growing by 11% to reach £2.57 billion. Although the majority was to fund home improvement, 13% used equity release to gift to family. 

From our own research, we found that the average first-time buyer deposit now sits at £42,324 - equivalent to more than a full year’s take-home pay. But through schemes like gifted deposits and family-supported mortgages, first-time buyers were able to increase their borrowing potential by £88,399, lifting maximum budgets from £271,484 to £390,817.

Read more: Things you didn't know about the generational wealth gap

What types of equity release are available?

There are three ways to release equity from your home: a lifetime mortgage, a home reversion and a private equity release set up.

• Lifetime mortgage. This involves taking out a mortgage loan that is secured on your home to release equity from it. You do not pay the loan back until you die or go into long-term care.
• Home reversion. This involves selling a portion of your home to the lender on the condition that you can continue to live there for as long as you wish
• Private equity release. This involves selling your home privately on the condition that you can continue living there for the rest of your life.

Let's explore each option in more detail so you can understand which might work best for your situation.

How to release equity from your home:

1. Lifetime mortgage

A lifetime mortgage involves borrowing a sum of money that is secured against your home. You won’t have to repay it until their home is sold, meaning you can stay there until you pass away or move into long-term care.

Most plans also include a ‘no negative equity guarantee’, so you (or your estate) will never owe more than the sale price of your home. If you have a serious health condition, you may be eligible for an enhanced lifetime mortgage, allowing you to borrow more money or pay less interest.

It's important to know that interest will be added to the debt, but there are two different options to manage the amount you’ll pay:

• Interest-paying mortgage. With an interest-paying lifetime mortgage, you will pay off the interest as you go. This can save you money because the interest won’t compound over time.
• Interest roll-up mortgage. If you don’t pay anything until your home is sold, an interest roll-up mortgage may be more suitable. This can work out a lot more expensive overall, though.

Many equity release providers offer what’s known as a ‘no negative equity guarantee’. This means that you’ll never owe more than the value of your home when it’s sold. If the property’s value dropped, this would protect you (or those inheriting your estate) from having to pay the lender more money.

Read more: How to reduce your liability for inheritance tax

2. Home reversion

If you choose a home reversion scheme, you’ll sell all or part of your property while keeping the right to continue living in it until you die or move into long-term care. You can choose whether you’d prefer to be paid a lump sum or a regular income.

Something to keep in mind is that you won’t receive the full market value for your home, whether you sell it all to the lender or just a percentage of it.

Also, some home reversion providers will only work with those who are aged 60 or above. If you’re in your 50s, we can help you find one who’ll work with younger homeowners.

3. Private equity release

A final option is a private arrangement where you sell your home on the understanding that you can remain there for life. This could save you a lot of money, but you’ll need to speak to a financial advisor and solicitor first. We'd strongly recommend having proper contracts and financial plans in place before pursuing this option.

How much equity can homeowners release?

Equity is simply the difference between your home’s current value and any mortgage you still owe. With a lifetime mortgage, you can usually release between 18% to 50% of your property’s total value. The older you are, the more you can usually release. You might also be able to borrow more if you’re in poor health.

Do you pay tax on equity release?

No, you won’t have to pay any income tax on the money you receive through equity release. After all, it’s technically a loan rather than a source of income.

If you’re concerned that your estate will be subject to Inheritance Tax when you pass away, equity release could help you reduce your IHT liability.

However, if you pass away within 7 years of giving away your assets to family or friends, these gifts may be taxable. The exact tax rate will vary depending on how many years have passed between the date the gift was given and your death. You can learn more about this in our how toreduce inheritance tax guide.

What happens to equity release when you die?

If you pass away after releasing equity from your home, what happens next will depend on whether you're a solo borrower or a joint borrower.

If you and your spouse took out equity release together and your spouse outlives you, they can continue to live in the property. If your spouse has already passed or you’re a solo borrower, the equity release plan will be due for repayment.

The amount due will usually be paid using the proceeds from the property sale. Selling a property can take a while, especially when the owner has passed away, so lenders usually give beneficiaries up to 12 months after the owner’s death to pay the money back. Some lenders are even more understanding, allowing up to 3 years.

If you’re concerned about the impact these time scales could have on your family, speak to a mortgage broker before applying for an equity release.

What are the risks with equity release?

Equity release, whether it’s a lifetime mortgage or home reversion scheme, is not suitable for everyone. If you are considering equity release, it’s important to seek financial advice before taking any action and ensure you’ve considered all the options available beforehand.

Risks of equity release

• If you make any large gifts to your family with equity release, they may have to pay inheritance tax in the future.
• Your loved ones may receive little or no inheritance when you pass away
• Interest may be accrued over the long term with a Lifetime Mortgage, which can make it expensive. This is because interest is charged on both the original loan and the interest that has been added, so the amount you owe will increase over time. This will reduce the equity left in your home and the value of any inheritance, potentially to zero.
• You may have to pay an early repayment charge if you repay the loan early — even if you don’t pay it off in full
• It can affect your entitlement to means-tested state benefits

Read more: What is a financial advisor?

You might also be interested in: Financial advisor vs wealth manager: What's the difference?

Alternatives to equity release

If you’d like to help your child or grandchild buy a home, there may be alternatives that suit you better than equity release. A remortgage, for example, can let you remove equity from your property without affecting your loved ones’ inheritance.

Another option is a Retirement Interest Only Mortgage. Take a look at our guide to RIO mortgages vs equity release to compare the two. In our Is equity release a good idea? guide, we explore the alternatives in even more detail.