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Equity Release Mortgages Explained

A guide to equity release mortgages and how to get the right advice from a retirement specialist

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 27, 2022

If you’re over 55 and own your own property, equity release can help you unlock cash from your home that can be used for many purposes. But how exactly does it work? Are there any pitfalls you should know about? And what alternative options are available?

Our comprehensive guide to equity release mortgages covers these topics and more, and in our FAQ section, we answer the questions we hear most often on this subject.

What is equity release?

Equity release schemes allow homeowners over 55 to access and release the cash that’s tied up in their property. Taking out equity release essentially means borrowing the equity you’ve built up in your home through paying off your mortgage. You can release it as a cash lump sum, small instalments or a combination of both.

The most popular type of equity release is a product called a lifetime mortgage.

How does it work?

If you take equity release through a lifetime mortgage, you would be borrowing the equity you’ve amassed in your home through a loan secured against the property itself.

You will retain ownership of the property and, although interest will accrue during the course of the term, the debt plus the interest is usually only repayable when you die or move into long-term care. The loan is typically settled through the sale of the property.

If you want to talk to someone about whether it might be an option for you, get in touch. The retirement mortgage specialists we work with can explain these products in detail and help you decide whether it’s the best course of action, based on your needs and circumstances.

Borrowers’ obligations

While you have a choice on whether to make any payments toward the interest, there are a number of things that are classed as mandatory obligations.

These include…

  • The property must be insured
  • It must be maintained
  • The property must not be left vacant
  • It should not be rented out
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Types of equity release

The main types of equity release are lifetime mortgages. These come in several varieties and they aren’t the only type of equity release product available. The difference between each variation of lifetime mortgage largely comes down to how you can access your cash and how the interest is paid off.

Lifetime mortgages

The main types of lifetime mortgages are…

  • Roll-up: Withdraw a lump sum of money with no monthly payments required. Interest will build up over the term, but this will only need to be paid with the debt itself at the end of the agreement, usually when the borrower (or their partner, if it’s a joint application) passes away or moves into long-term care.
  • Drawdown: Works similarly to a roll-up plan, except it allows you to withdraw money in installments. Interest is only payable on capital you’ve drawn down.
  • Flexible: You withdraw your equity as a lump sum but are free to make voluntary repayments throughout the term to bring down the amount due at the end.
  • Enhanced: Exclusively for customers with specific health conditions. It allows you to borrow a larger amount of equity, usually at a more favourable rate.
  • Interest-only: You have the option to pay off a certain amount of the accrued interest each month, leaving you with a smaller bill at the end of the term.

Home reversion plans

Home reversion plans are an alternative form of equity release. Taking out one of these products involves selling all or a portion of your home to a home reversion provider, usually at 20-60% of its market value, in exchange for a lump sum or monthly instalments.

You would become a co-owner of the property but won’t need to pay any rent on the percentage of your home that no longer belongs to you. When the property is eventually sold, the reversion company recoups its share of the proceeds.

The home reversion market in the UK is much smaller than the interest-only mortgage sector and most retirement experts do not recommend these products because you’d have to give up your stake in a major asset and settle for less than the market value of your home.

How to release equity from your home

Here’s a step-by-step guide on how to apply for equity release…

  1. Seek professional advice: Equity release is something you should never do lightly, so it’s important to seek impartial advice from a later-life lending specialist before you begin. Make an enquiry with us and we’ll match you with an equity release expert for a free, no-obligation chat about your needs and circumstances.
  2. Complete your application form: Your equity release advisor will work closely with you on your application, offering bespoke advice along the way, before submitting it to the equity release provider. At this stage, you will need to provide documents for proof of address and proof of identification.
  3. Valuation and legal due diligence: Your advisor will liaise with your solicitor (they will recommend one if you don’t want to appoint one yourself) and a valuation will be carried out on your property, arranged by the lender Subject to a successful valuation, an offer will be made and your solicitor will begin the legal paperwork.

After these three steps have been completed, your solicitor will set a completion date and arrange for you to claim your equity release funds.

How long will the process take?

For lifetime mortgage schemes, expect a timeframe of around eight weeks before you’re able to access your funds. Home reversion plans typically take slightly longer, approximately 10-to-12 weeks before the equity release process is complete.

Eligibility criteria

To qualify for equity release, you will need to be over the age of 55 (or over 65 for a home reversion plan) and own your own home. Most providers prefer you to have paid off your mortgage and hold 100% equity in the property.

While it’s possible to take equity release with existing mortgage debt, the outstanding balance on your mortgage will need to be settled as part of the agreement. It would usually be paid off using the released equity and any remaining money would be paid into your bank account.

If it’s a joint application, both you and your partner will need to be at least 55.

How much equity release will you qualify for?

Most equity release providers will cap the amount they will offer at somewhere between 20% and 50% of the property’s market value. Some go higher than this and others lower.

They will calculate the exact amount you’re eligible for based on the following factors…

  • Your age: The older you are, the more equity you can usually release
  • Your health: People with serious health issues may be able to release more equity. There are over 100 conditions which qualify, so speak to an expert for a full list
  • Your property: What your home is worth is a key factor here as providers will base the loan amount on its market value. The property type might also be a factor as people with non-standard construction homes won’t qualify for equity release

Minimum equity release amounts

Some lenders will only approve an equity release application if the deal is worth a certain amount. There’s no set limit that applies across the board but at most providers, it’s between £10,000 and £15,000, although more prestigious schemes can set it as high as £100,000.

This is another area where the value of your home can be a factor as most equity release providers will only consider your application if it’s worth at least £70,000.

Equity Release Calculator

To find out how much equity release you may eligible for you can use our easy to use calculator here:

calculator icon

Equity Release Calculator

You can use our equity release calculator to work out how much capital you can release from your home. Simply enter your age and the property’s value and the tool will do the rest.

Estimate if you're unsure
For joint applications the amount you can release is based on the age of the youngest applicant
years old

Maximum Equity you could release:

The amount is of your homes value, the maximum most borrowers your age can release.

Get Started with an Equity Release Specialist and find out exactly how much you could release.

Get Started

Can you get out of an equity release plan?

Yes. It is possible to exit an equity release plan, but it can be costly. Many lenders impose early repayment charges, while others may levy these charges in different ways.

Receiving a lump sum from an unexpected windfall such as an inheritance could be utilised to help pay off an equity release loan early. Downsizing may be another possibility.

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Which lenders offer equity release?

Although the Equity Release Council is selective about which lenders can operate in this space, the market is vast and there are many options to choose from. Some of the most well-known equity release providers include…

  • Aviva
  • Hodge Lifetime
  • Liverpool Victoria
  • Legal and General
  • Bridgewater Equity Release
  • Standard Life
  • Scottish Widows
  • Nationwide
  • And more… you can find a full list on the Equity Release Council’s website

Keep in mind that not all equity release providers are the same. Some offer more flexibility than others and there are providers with strict caveats, including restrictions on the amount of capital you can release from your home.

The best way to avoid any lender-related pitfalls and find the provider who is best positioned to offer you a suitable deal is to speak to an independent equity release advisor.

They will be able to assess your needs and circumstances and make sure you find an Equity Release Council-approved lender who fits your requirements, first time.

How much will it cost?

Interest rates can be higher for equity release than standard residential mortgages. At the time of writing, around 5% is average, but by shopping around, it may be possible to find a more favourable deal – this is something a mortgage broker can help you with.

Keep in mind that you won’t usually have to pay the interest or settle the debt until the end of the term, but there may be other costs and fees to foot, including…

  • Valuation fees
  • Administration and application fees
  • A broker fee
  • Legal costs

These can vary from one provider to another but you can make an enquiry with us for a detailed breakdown based on the deals that you qualify for.

Get matched with an equity release advisor today

Equity release can help you unlock the capital you’ve built up in your home to fund essential living costs or make your life more comfortable in retirement, but releasing equity is not something to be taken lightly, so be sure to seek professional advice first.

We work with equity release specialists who can talk you through these products and help you decide if they’re right for you. By using our free advisor-matching service, you can rest assured that you’ll be paired up with the equity release advisor who’s best placed to help somebody with your needs and circumstances. This will be someone we’ve vetted and trained ourselves.

Call 0808 189 2301 or make an enquiry and we’ll match you with an equity release specialist for a free, no-obligation chat today.


Is there a risk I could lose my home?

No. Your home is secure until you pass away or go into long-term care. You are entitled to remain in your home for as long as you live. If you have a partner and one of you dies or goes into care, the surviving partner can remain in the property.

Can I move house if I’ve taken equity release?

Yes. If you’re already in an equity release plan you may be able to ‘port’ it with you after selling your current house. The value of the new property must be worth enough so that the provider is happy to lend the same amount against it. If this is not the case, you can still move house but may have to repay some of the capital you’ve borrowed early.

Are there tax implications to consider?

Yes. While the equity you release from your home is tax-free, there may be implications depending on what you intend to use it for. For example, if you decide to put the money into a savings account or make an investment, the tax may then be payable on any interest, income or gains you receive.

There are a number of ways to save or invest your equity release funds if you don’t wish to spend them immediately, including placing the funds in a personal savings account or an ISA to take advantage of a tax-free allowance facility.

The other tax implication of equity release to consider is the potential to minimise your inheritance tax liability when you die (as a result of your estate decreasing in value). Although your beneficiaries might be inheriting less via your assets, it may be the case that you can pass on secure pension savings outside of your estate if you’ve taken equity release during retirement

Do I need a lasting power of attorney?

It’s possible. Most lenders will recommend that you have a lasting power of attorney (LPA) in place if you’re taking equity release, in some cases, they might even insist on it.

An LPA is a legal document which allows you to nominate one or more people you trust to make decisions on your behalf if there ever comes a time when you’re unable to, due to ill health or the decline of your mental capacity.

Will my benefits be affected?

They could be. If you’re on means-tested benefits such as pension credit, savings credit or council tax benefit, an increase in your savings because of equity release can affect them. There are limits on how much savings you can have before you start to lose your benefits.

Can I use equity release to buy a property abroad?

Yes. There are some lenders who will let you release equity from your home to buy an overseas property and many that won’t.

There are rules which dictate how long you must reside in your UK home if you’ve taken equity release. So while it is not possible to fund a complete move abroad, you could potentially use a lifetime mortgage to buy an overseas home that you visit regularly.

Can I get equity release on more than one property?

Yes, although it may make more financial sense to sell the second property rather than using equity release again. Speak to an expert for more information on this.

Can I rent out my house if I have equity release on it?

Yes. Some lenders will allow you to release equity on your property if you have a lodger or even a tenant, but it’s important to speak to an equity release specialist to find out which lenders will accept equity release under these circumstances.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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