Equity release can be a useful way to access cash during retirement.
The equity release market returned to growth in the second quarter of 2026, as total lending rose 4 per cent, according to the Equity Release Council (ERC).
Before applying for equity release, it is essential to consider if it is right for you and what the alternatives are, as well as consulting a specialist adviser or mortgage broker.
Here’s exactly what equity release is, how it works and the mistakes to avoid.
What is equity release and how does it work?
Equity release is a type of mortgage that allows you to access money as a tax-free regular income or lump sum (or both), which is tied up in your home, without needing to sell it.
Some providers may have a minimum lump sum, usually £10,000. Individuals tend to use the cash for income, home improvements, travelling, supporting loved ones or clearing debt.
There are two types of equity release, which are a lifetime mortgage and home reversion. You must meet certain criteria, including being aged 50-55 or over, as well as own your UK home that is worth at least £70,000.
With a lifetime mortgage, you borrow money by taking out a loan secured on your home, and continue living in it. The loan and interest is repaid when you move into care, sell your property, or pass away. You can make interest payments penalty-free to help reduce the amount you owe over time.
With a home reversion plan, a company or equity release provider buys all or part of your home in exchange for a tax-free lump sum or regular income. You do not pay interest, and can live in your home until you pass away, or go into long-term care.
How much your beneficiaries receive depends on how much of your property you own, with the rest given to the company.
There are downsides to equity release as fees and early repayment charges may apply, it can impact eligibility for benefits, and – if you choose home reversion – you may receive significantly lower than your property’s market value.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
ADVERTISEMENT
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
ADVERTISEMENT
How can equity release impact your inheritance?
Equity release can also impact what you pass down to your loved ones.
You do not pay inheritance tax (IHT), which is 40 per cent, if your estate is valued under £325,000 and you leave everything exceeding this to a spouse, civil partner, charity, or community amateur sports club. Individuals may benefit from a higher £500,000 threshold if they pass their home onto children or grandchildren.
Equity release can reduce the value of your estate, which could mean a lower IHT bill, but your loved ones will receive less, and you may have to pay interest on your loan.
The loan is typically cleared by selling the property (usually within 12 months), with the remainder going to beneficiaries. Interest on the loan will continue to accrue after your death, and it is unlikely anything will be passed on until it is cleared. Alternatively, the loan could be paid off without selling the property, but this may be expensive.
If you are planning to use equity release to give money to loved ones while you’re alive, it is vital you seek expert advice, as there are rules and considerations that may impact your tax bill.
What equity release mistakes you should avoid?
If you have had expert advice, considered alternatives, and believe equity release is right for you, there are some mistakes to make sure you avoid.
Not using a provider with a “no negative equity guarantee”: Most lifetime mortgages are backed by the ERC’s no negative equity guarantee, so your estate will never owe more than the property is worth when it is sold. This also means if the value of your home significantly falls and does not cover your loan, the rest will be written off.
Not considering inheritance protection: Inheritance protection allows you to protect a specific percentage of the value of your home, but may incur a fee, will become part of your taxable estate, and impact how much you can borrow.
Borrowing too much at once: You can use a drawdown lifetime mortgage to get a lump sum, and withdraw money when needed. You may have limits on the amount you can access each time, but you only pay interest on what you withdraw, helping to limit the amount of interest being accrued.
Not making interest payments: Making interest payments can help minimise the impact of compound interest, which can significantly increase the overall cost of your loan.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
