Equity Release

How Does Equity Release Work? An Expert’s Plain English Guide

how does equity release work
Chris Taylor
Chris Taylor | Mortgage & Protection Advisor
Updated 30, September 2025

Want to know how equity release works? This financial option lets you tap into 20% to 60% of your home's value while you continue living there.

You’ll find two main types of equity release – a lifetime mortgage or a home reversion plan. A lifetime mortgage creates a loan your estate must repay, usually by selling your home. The biggest problem lies with interest accumulation. At 6% interest, your debt doubles roughly every 12 years. The whole process takes eight to twelve weeks from start to finish.

This piece breaks down everything about equity release in simple terms. You’ll learn about eligibility criteria, available options, the step-by-step process, and key factors to think over before making your choice.

What is equity release and who is it for?

Equity release lets homeowners tap into their property’s value while they continue living there. You don’t need to downsize or move – it’s different from selling your home outright.

Definition in simple terms

Equity release gives you a way to get money from your home without selling it. Your home equity is the part of your property you fully own – just take the current market value and subtract any mortgage or secured debts. This product helps you turn some of that value into cash you can spend however you want.

You’ll find two main types of equity release. The most popular option is a lifetime mortgage – a loan secured on your home that you don’t need to repay until you pass away or move permanently into care. The other choice is a home reversion plan where you sell part or all of your property but keep the right to live there without paying rent.

The money can come as one big payment (lenders ask for at least £10,000), smaller amounts when you need them (called drawdown), or you can mix both approaches.

Who qualifies for equity release?

You need to meet several conditions to get equity release. We mainly look for people who are at least 55 years old for lifetime mortgages, though some providers now start at 50. Home reversion plans usually need you to be 60 or older.

Your property must be worth £70,000 or more and be in the UK. This needs to be your main home and you must keep it in good shape. Lenders take your home’s condition seriously – they might say no if it needs major repairs.

Most property types work well, like houses, flats, and bungalows. Some properties face limits though. These include homes with private water supplies, thatched roofs, land over 15 acres, or buildings that house livestock.

Here’s something interesting – equity release providers don’t usually care about your income or spending habits, unlike regular mortgages. They’re also more relaxed about bad credit, though big financial problems might affect your chances.

Why people call it a good option

People choose equity release to solve real-world problems. Home improvements top the list – about 30% of borrowers want to renovate their property or garden.

Paying off existing debts is another big reason, which makes sense since research shows 19% of retirees have debts averaging £33,900. Equity release helps eliminate these money worries without monthly payments.

Many homeowners use it to boost their retirement income tax-free. This extra money helps maintain their lifestyle and covers unexpected costs that pop up.

Family support is also popular. Many people prefer to help their loved ones now rather than leaving everything in their will. This money can help children or grandchildren buy houses, pay for education, or handle other big expenses.

Some folks use equity release to live out their dreams. This might mean taking special trips, buying that car they’ve always wanted, or enjoying experiences they’ve dreamed about.

Types of equity release explained

You’ll find several different options as you learn about equity release. Each option has its own features and benefits. Learning about these differences is vital to make smart decisions about accessing your home’s wealth.

Lifetime mortgage

Lifetime mortgages are the most common way to release equity. They make up 99% of the equity release market. This option lets you borrow money against your home’s value while you keep full ownership.

You need to be at least 55 years old to qualify (some products allow 50). The loan uses your property as security and doesn’t need monthly repayments. The interest builds up over time and your estate pays back the total amount after you die or move to long-term care.

The debt can grow fast because of compound interest. To name just one example, see how a 6% interest rate could double your debt in 12 years. This can substantially reduce any inheritance you plan to leave.

Most lifetime mortgages that the Equity Release Council backs come with a “no negative equity guarantee.” This means you’ll never owe more than what your home sells for.

These mortgages come in different types:

  • Interest roll-up mortgages – interest adds up without payments
  • Interest-paying mortgages – you can choose to pay monthly interest
  • Enhanced lifetime mortgages – better deals for people with health issues

Home reversion plan

Home reversion plans work differently from lifetime mortgages. You sell part or all of your property (20% to 60%) to a provider for less than market value. The minimum age is 60.

The sale gets you a tax-free lump sum or regular income. You also get a “lifetime lease” that lets you live in your home rent-free until you die or need care. The sale proceeds get split based on ownership shares when your home sells.

The main difference is simple. Home reversion means selling part of your property. A lifetime mortgage means borrowing against it. Home reversion has no interest because it’s not a loan.

Drawdown options

Drawdown lifetime mortgages give you more flexibility than standard lump-sum deals. You get some money upfront and can take more later when needed.

You only pay interest on the money you’ve taken, not your total available amount. This approach can save you thousands in interest over time.

The numbers tell the story. Borrowing £81,703 as one lump sum starts charging interest on everything right away. But taking £51,703 first and two £15,000 withdrawals later could save you £32,851 in interest over 15 years.

This option works well for retirees. It helps them manage means-tested benefits by keeping their savings and income lower.

Remortgaging to release equity

Remortgaging is another way to tap into your property’s value besides traditional equity release products. You take out a new mortgage on your home with your current lender or a new one.

The steps are straightforward:

  1. You increase your mortgage loan by the amount you want to release
  2. Pay off your existing mortgage
  3. Get the difference as cash

The math is simple. Picture a home worth £300,000 with a £200,000 mortgage. To release £20,000, you’d remortgage for £220,000.

Remortgaging needs monthly payments, unlike lifetime mortgages. But you might get lower interest rates. Getting a standard mortgage gets harder as you get older.

The whole ordeal usually takes four to eight weeks.

How does equity release work step-by-step?

Getting equity from your home is a straightforward process that needs professional guidance. A clear understanding of each step will help you know what to expect.

Original advice and eligibility check

Your first step needs a qualified adviser with specific permissions for this specialised advice. The best choice would be an adviser who belongs to the Equity Release Council. This ensures you get the right guidance. Your first meeting will cover:

  1. Your circumstances and financial needs
  2. Eligibility requirements (age 55+, property worth at least £70,000)
  3. Other options besides equity release
  4. A personal Key Facts Illustration that shows costs and details

Most advisers want your family to be part of these discussions because it could affect their inheritance. If equity release looks right for you, your adviser will help you fill out an application form.

Property valuation and application

The lender will send a qualified RICS surveyor to value your home after you submit your application. The surveyor will:

  • Look at every room and outbuilding
  • Take pictures of important areas
  • Check the property’s condition and features
  • Work out its market value by comparing similar properties

This valuation shows how much you can borrow and confirms your property meets the lender’s requirements. The inspection usually takes 20-40 minutes, and you’ll get the report within 48 hours.

Legal process and completion

You’ll get a formal offer letter after a successful valuation. You must then choose a solicitor who knows equity release law to handle the legal work. The Equity Release Council rules say you need at least one face-to-face meeting with your solicitor to:

  • Go through the contract details
  • Make sure you understand everything
  • Check you’re making your own decision
  • Sign the legal documents

Your solicitor checks your property’s legal title before completion.

How long the process takes

The whole process usually takes 8-12 weeks from when you apply until you get your money. Here’s what to expect:

  • Lifetime mortgages take 4-6 weeks
  • Home reversion plans need up to 8 weeks

Some things might make it take longer, such as complex property issues, missing paperwork, or slow responses. You can speed things up by getting your paperwork ready early, answering questions quickly, and working with professionals who know equity release well.

Mortgageable offers a free Equifax Credit Report as part of its service, with no obligation to proceed. Something worth considering.

how does equity release work

What happens after you take equity release?

Life goes on much like before once you complete your equity release arrangement. You should know about some key changes though.

Living in your home

Your equity release completion lets you keep living in your property. A lifetime mortgage means you own your home completely while using the money you’ve released. Choosing a home reversion plan gives you a “lifetime lease” that lets you live rent-free even though you’ve sold part of your property.

You’ll need to keep your property well-maintained and let your provider know about any major changes. Most lenders let other people live with you. These people must sign a waiver to confirm they’ll move out after you’re gone.

What happens when you die or go into care

Your equity release plan ends after the last borrower dies or moves into long-term care. Your executor needs to contact your provider with your plan’s reference number.

The loan needs repayment within 12 months, and interest keeps building during this time. Your executor usually sells your property to pay off the loan plus agent and solicitor fees. Any money left goes to your beneficiaries.

Couples with joint plans give the surviving partner the right to stay in the property under the same terms until they die or need care. This makes joint plans a smart choice for couples.

Inheritance protection options

Equity release cuts into your estate’s value, so some plans come with inheritance protection guarantees. You can “ringfence” part of your home’s value as a guaranteed inheritance.

Take a home worth £250,000 – you could protect 20% (£50,000) as inheritance, whatever amount of interest builds up. This will lower your maximum borrowing amount by the same percentage all the same.

Selling your home later

You can sell your home after taking equity release, though there are some rules. Many plans let you move your arrangement to a new property that meets your lender’s requirements.

About 70-75% of lifetime mortgages now include “downsizing protection.” This lets you repay without penalties if you move to a smaller property after five years. Without this feature, selling means you’ll need to repay the loan plus any early repayment charges, which can cost a lot.

Costs, risks and things to consider

You should think over all financial implications and possible alternatives before committing to equity release. A complete understanding of the process will help you decide if this option works for your situation.

Upfront and ongoing costs

Getting equity release comes with several original expenses. Arrangement fees range from £0 to £695. Legal work costs about £860, but prices differ among solicitors. Some providers charge valuation fees, while others give this service free.

Interest is your biggest ongoing expense. Lifetime mortgage rates start from about 6%, which is nowhere near standard mortgage rates. Your debt could double every 12 years at this rate due to compound interest. A £20,000 loan at age 60 might grow to £80,000 by age 84.

Impact on benefits and inheritance

Equity release might change your eligibility for means-tested benefits. Your benefits start decreasing when savings go above £6,000 (or £10,000 for care homes). You lose all entitlement above £16,000. Universal Credit, Council Tax Reduction, and Pension Credit are some benefits that could change.

The value of your estate will naturally decrease, leaving less money for your beneficiaries. Make sure this matches your plans for inheritance.

No negative equity guarantee

Products that meet Equity Release Council standards come with a “no negative equity guarantee”. This vital protection means you or your estate won’t owe more than your home’s sale value. The lender writes off any shortfall if property prices drop or your debt becomes larger than your home’s value.

Alternatives to equity release

Look at other options first. Moving to a smaller home often frees up more money. Retirement interest-only mortgages let you pay just the monthly interest. You can earn up to £7,500 tax-free each year by renting out a spare room. Home improvements might qualify for local authority grants. Even getting a new mortgage or extending your current one could work.

Related reading: 

Conclusion

Equity release is definitely a practical solution for homeowners 55 and older who want to tap into their property’s wealth without moving out. The process takes 8-12 weeks, and you can choose between lifetime mortgages or home reversion plans based on your goals and situation.

You should think about all the factors carefully before deciding. Your estate’s value can drop by a lot over time due to compound interest. Your debt could double every 12 years at current rates. On top of that, it might affect your means-tested benefits and reduce what you leave behind for your family.

The good news is that products backed by the Equity Release Council come with great protections. The no negative equity guarantee means you or your estate will never owe more than your home’s sale value. This safety net gives you peace of mind with such a big financial decision.

You have other options if equity release doesn’t feel right. Downsizing often frees up more capital. Retirement interest-only mortgages or renting out a spare room might work better for you. Your personal situation, long-term plans, and financial priorities will determine the best path forward.

Equity release works best when you fully understand it and get professional guidance. Talk to a qualified adviser and bring your family into the discussion. This helps you make an informed choice that works for both your current financial needs and your future goals.

Key Takeaways

Understanding equity release is crucial for homeowners aged 55+ considering accessing their property wealth whilst remaining in their homes.

• Equity release allows you to unlock 20-60% of your home’s value without moving, but interest compounds rapidly—doubling debt every 12 years at 6%

• Two main options exist: lifetime mortgages (borrowing against your home) and home reversion plans (selling part of your property whilst living there rent-free)

• The process takes 8-12 weeks involving professional advice, property valuation, and legal completion with mandatory solicitor meetings for protection

• Consider alternatives first—downsizing often releases more equity, whilst retirement interest-only mortgages or renting spare rooms may better suit your needs

• All Equity Release Council products include no negative equity guarantee, ensuring you’ll never owe more than your home’s sale value

Equity release significantly impacts inheritance and may affect means-tested benefits, making professional guidance and family discussions essential before proceeding.

Chris Taylor
Written by Chris Taylor

Hello! I’m Chris, a mortgage advisor based in the heart of Cheshire.

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