Equity release means a financial arrangement where older homeowners can unlock cash from the value of their home while continuing to live in it. As a financial product, equity release is specifically designed for retirees and involves borrowing against home equity, with unique features and long-term implications. The Equity Release Council, an industry body, sets standards for the sector to help protect consumers. This guide explains how equity release works in 2026, the different types available, associated costs and risks, and what to consider before proceeding.
Quick Overview: What This Article Will Answer First
Before diving into the detail, here is a summary of the key questions this article addresses early on:
- What is equity release? A way for UK homeowners typically aged 55 or over to unlock cash from their main residence without selling or moving home
- You can use an equity release calculator to estimate how much equity you could release from your property before speaking to an adviser.
- Who is it for in 2026? Homeowners usually aged 55+ (some products available from age 50), with sufficient property value
- Typical interest rates this year: Many lifetime mortgages are priced between approximately 6–8% AER, depending on age, loan-to-value, features and health
- How is it repaid? Usually from the sale of the property when the homeowner dies, moves into long term care, or voluntarily sells
- Main risks: Compound interest causing rapid debt growth, reduced inheritance for beneficiaries, potential impact on means tested benefits
- Long-term commitment: Equity release is a long-term financial commitment and may not be suitable for everyone.
- Qualified adviser required: You can only release equity through a qualified equity release adviser.
The data and examples in this article are based on UK market conditions and Equity Release Council statistics up to early 2026.
What Is Equity Release?
Equity release is a way for UK homeowners, usually aged 55 or over, to convert part of the value of their main residence into tax free cash without having to sell or move home. The funds can be taken as a single lump sum, through flexible drawdown, or sometimes as regular income. Many people use equity release to release money from their property to pay off debts or fund retirement needs.
Your equity is simply the difference between the current market value of your property and any outstanding mortgage or secured loans. For example, if your home is worth £450,000 and you have an existing mortgage of £40,000, your equity would be £410,000. How much equity you can actually release depends on your age, health and the value of your home. An equity release calculator can help estimate this amount.
There are different types of equity release products available in the UK from London to Edinburgh , regulated by the FCA: the two main types are lifetime mortgages and home reversion plans. The vast majority of new plans in 2025–2026 have been lifetime mortgages, industry figures suggest these account for over 99% of the market. Home reversion plans remain a minority option, typically used in specific circumstances. With a home reversion plan, you sell all or part of your home to a provider for less than the market value in return for a tax-free cash lump sum or a regular income.
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You can only take out equity release products through a qualified financial adviser.
Types of Equity Release
Understanding the different product structures is essential before speaking to an adviser. Equity release schemes include a range of equity release products, such as lifetime mortgages and home reversion plans. These schemes allow homeowners, typically aged 55 and above, to access the equity tied up in their property to fund retirement or other needs. Some providers also offer variations such as drawdown lifetime mortgages and interest-payment lifetime mortgages.
The table below summarises the key differences between the two main types:
Feature | Lifetime Mortgage | Home Reversion |
|---|---|---|
Ownership retained | 100% | Partial (sold share is lost permanently) |
Minimum age | Usually 55 (some from 50) | Usually 60–65 |
How funds are paid | Cash lump sum or drawdown facility | Lump sum and/or regular income |
Interest or sale discount | Interest charged (compounds if unpaid) | No interest—funds received at discount to property value |
What happens on death/long term care | Property sold, loan repaid from proceeds | Provider receives their share of sale proceeds |
Typical usage in 2026 market | Over 99% of new equity release plans | Less common; used in specific circumstances |
Equity release mortgages are the most common equity release products in the UK, making up the vast majority of new plans.
Before proceeding, it is essential to seek professional advice and expert advice from a qualified equity release provider to ensure you understand the terms, costs, and implications of any equity release scheme.
Lifetime Mortgages
A lifetime mortgage is a long-term loan secured against your home that allows you to borrow money based on the value of your property. It is usually available from age 55, though some Payment Term Lifetime Mortgages are available from age 50 in 2026. When you borrow money through a lifetime mortgage, you are charged interest on the amount borrowed. There is no requirement to make monthly repayments unless the borrower chooses to do so.
With most lifetime mortgages, interest builds up over time. This is known as “rolled-up” or compound interest. Interest is added to the loan balance each year (or month), meaning the amount you owe can grow quickly over a typical 15–25 year retirement. For example, if you release £100,000 at a rate of 6.5% AER and make no voluntary repayments, after 15 years you could owe approximately £257,000, and after 20 years around £352,000. Understanding how you are charged interest is important, as it affects the total cost of borrowing money over time.
There are several sub-types of lifetime mortgage products:
- Lump sum lifetime mortgage: You borrow money as a single lump sum upfront, and you are charged interest on the full amount from day one.
- Drawdown lifetime mortgage: You take an initial lump sum and have a reserved facility to withdraw more money as needed. Interest is only charged on funds actually drawn, which can help reduce overall costs.
- Interest-payment lifetime mortgage: You make optional regular payments (monthly payments or otherwise) to slow or stop the balance growing, which can reduce the amount of charged interest over time.
Most modern lifetime mortgages recommended by Equity Release Council members include a negative equity guarantee, meaning you (or your estate) will never owe more than the property is worth when it is sold. There are also protections around moving home or repaying early, though early repayment charges may apply.
Home Reversion Plans
With a home reversion plan, you sell all or part of your property to a reversion company in exchange for a lump sum and/or regular income. You retain the right to live in the property rent-free for life.
The sale is at a discount to current market value because the provider may have to wait many years before they can sell the property. For example, selling 40% of a £400,000 London home might generate significantly less than £160,000 in 2026. The exact amount depends on your age and the provider’s terms. When the property is eventually sold, the provider receives their agreed share of the proceeds, and any money left after their share is taken will go to your estate or beneficiaries.
The minimum age for home reversion is usually higher, often 60–65 or above. Home reversion is a minority of the equity release market in 2026, typically used where the client wants certainty about the share of the property they are giving up, or where a lifetime mortgage is unsuitable.
Important: Home reversion involves a permanent transfer of ownership of part or all of the home. Independent legal advice is mandatory before proceeding, and you should seek advice from a qualified financial adviser to ensure you fully understand the implications.
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Eligibility: Age, Property and Personal Circumstances
Eligibility for equity release depends mainly on age, property details, existing mortgage balance, health and sometimes lifestyle factors. Each lender and benefit scheme has its own rules regarding eligibility and criteria, so it is important to check these before proceeding.
Age: In 2026, the minimum age for most lifetime mortgages is 55, with some Payment Term Lifetime Mortgages available from age 50. For home reversion, the minimum is usually 60–65. Maximum ages and joint borrower rules vary by lender.
Your home: The property must usually be your main UK residence, in reasonable condition, and meet minimum value thresholds (often £70,000 or more). Standard construction is preferred, though flats above commercial premises, listed buildings or large rural properties may be acceptable to certain providers. Your local authority may also offer grants or support for home improvements, especially if you have a disability or are on a low income, which could be an alternative to equity release.
Existing borrowing: Any current residential mortgage or secured loan must normally be repaid on completion, often using part of the equity release funds. High existing borrowing can limit or prevent equity release.
Health and lifestyle: Some providers offer “enhanced” or “impaired life” equity release, where serious health issues (such as heart disease, certain cancers, or a heavy smoking history) can allow a higher maximum release or different terms. This is because the lender expects the loan to be repaid sooner.
It is important to remember that council tax is a priority debt that must be maintained, and releasing equity does not remove your obligation to pay council tax.
How Does Equity Release Actually Work in Practice?
The equity release process typically follows a clear sequence from first enquiry to funds being released. An adviser will provide advice throughout the process to ensure you understand your options and the implications. In 2025–2026, most lifetime mortgage cases complete in around 8–12 weeks from initial application to funds being available, with some straightforward cases concluding faster.
Here is a step-by-step overview:
Step 1: Initial Conversation
- Initial conversation with a qualified financial adviser: You discuss your needs, goals and alternatives with a professional who provides equity release advice. If you have any doubts or complex circumstances, you should seek further advice to ensure you make an informed decision.
Step 2: Fact-Find
- Detailed fact-find: The adviser reviews your income, assets, benefits and family needs. Equity release can affect benefits and future benefit entitlement, especially means-tested benefits, so it is important to review these carefully.
Step 3: Recommendation and Personalised Illustration
- Recommendation and personalised illustration: The adviser explains suitable options and provides a key facts illustration. They will also clarify that funds released through equity release are usually not subject to income tax, but you should check your personal tax situation to ensure there are no unexpected implications.
Step 4: Property Valuation
- Property valuation: A surveyor assesses the value of your home
Step 5: Application and Underwriting
- Application and underwriting: The lender reviews your application
Step 6: Independent Legal Advice and Signing
- Independent legal advice and signing: A solicitor (separate from the lender’s) explains the legal implications and you sign the documents. If you have any concerns or issues, ask your solicitor or adviser for a copy of their complaints procedure so you know how to resolve any disputes.
Step 7: Completion and Funds Transfer
- Completion and funds transfer: The money is released to you
Stage | What Usually Happens |
|---|---|
Week 1–2: Advice & recommendation | Meeting with adviser, fact-find, illustration provided |
Week 3–5: Valuation and lender assessment | Surveyor visits, lender reviews application |
Week 6–10: Legal work & completion | Solicitor involvement, signing, funds released |
Costs, Interest Rates and Fees in 2026
Equity release is a lifetime commitment and total costs involved can be substantial due to compound interest, even where headline interest rates appear competitive.
As at January 2026, many fixed-rate lifetime mortgages are priced between approximately 6–8% AER, depending on age, loan-to-value, features and health. Exact rates change regularly and must be confirmed with a specialist equity release adviser.
Fees may include:
- Advice fee: Some advisers charge a fixed advice fee (often £1,000–£2,000), while others operate on a “no advice fee unless you proceed” basis
- Lender’s application fee: Typically £500–£1,000
- Surveyor’s valuation fee: Usually £250–£700 depending on the value of your home
- Legal fees: Your own solicitor’s fees for independent legal advice, often £500–£1,000
Cost Item | When Payable | Typical 2026 Range |
|---|---|---|
Advice fee | On completion or upfront | £0–£2,000 |
Lender application fee | On application or completion | £500–£1,000 |
Valuation fee | On application | £250–£700 |
Legal fees | On completion | £500–£1,000 |
- AER (Annual Equivalent Rate) shows the interest rate as if it were compounded once a year, making it easier to compare products
- APR (Annual Percentage Rate of Charge) includes fees as well as interest, making it useful for comparing total cost
Worked Example: How Interest Can Build Up
To illustrate how interest builds up, consider a 68-year-old homeowner who releases £100,000 on a lifetime mortgage at 6.5% AER in 2026 and makes no monthly repayments:
Time | Approximate Balance Owed |
|---|---|
At start | £100,000 |
After 15 years | £257,000 |
After 20 years | £352,000 |
This is a simplified illustration, not personalised advice. Real outcomes depend on the exact interest rate, fees, and any voluntary repayments you choose to make.
Warning: Because property values can fall or grow slower than expected, there is no guarantee that rising house prices will “outpace” rolled-up interest, even in areas that have seen strong growth historically.
What Can Equity Release Be Used For?
Funds released from a main residence via equity release are usually received as tax free cash. However, how the money is used can affect benefit entitlement and future financial options.
Many people choose to use equity release to help their children or grandchildren get on the property ladder, providing financial support for their first home purchase.
Home Improvements
The most common use cited by UK providers in 2025–2026 is home improvements—such as installing energy-efficient windows, a new kitchen, or a level-access shower to support ageing in place.
Managing Borrowing
Many homeowners use equity release to clear an existing mortgage on their main residence, removing monthly payments and simplifying their finances.
Supporting Family
Releasing equity to gift to children or grandchildren for example, towards a deposit on a first home has become increasingly popular. This is sometimes called a “living inheritance.”
Supplementing Retirement Income or Funding Care
Some use drawdown equity release to supplement retirement income over time, or to pay for private or domiciliary care.
Important: Many equity release lenders do not permit the funds to be used directly for certain purposes such as speculative investments, some tax-driven schemes, or buying a buy to let through a limited company. Clients looking to purchase or refinance investment property may be better served by specialist buy to let or commercial mortgages.
Risks, Drawbacks and Safeguards
Equity release will usually reduce the value of the estate left to your beneficiaries, as the loan and interest are repaid from the sale of your home. It may also affect your entitlement to means-tested benefits, such as Pension Credit and Council Tax Support.
However, equity release is considered safe when you use regulated products and seek independent advice. There are strict regulations and safeguards in place to protect consumers, ensuring that equity release safe practices are followed.
Key Risks
- Compound interest can cause the debt to grow rapidly, especially if no repayments are made.
- The amount left as inheritance for beneficiaries is likely to be reduced.
- Taking equity release may affect entitlement to means-tested state benefits.
- If property values fall or do not rise as expected, the remaining equity could be less than anticipated.
- Early repayment charges may apply if you wish to repay the loan early.
- Home reversion plans involve a permanent loss of ownership of part or all of your home.
Key Safeguards
- Most lifetime mortgages recommended by Equity Release Council members include a no negative equity guarantee, so you or your estate will never owe more than the property is worth.
- You retain the right to live in your home for life or until you move into long-term care.
- Independent legal advice is mandatory before completing any equity release plan.
- All plans regulated by the FCA must meet strict standards for transparency and consumer protection.
- Flexible features are often available, such as the ability to make voluntary repayments or move home in the future (subject to lender criteria).
Downsizing – Regulated Bridging
If you plan to sale your property and downsize, you may wish to consider a regulated bridging loan. The loan will allow you to purchase the next property before your sale goes through. regulated bridging advice is provided by our regulated bridging loan advisers, FD Commercial & Bridging.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, request a personalised illustration. Equity release reduces estate value and can affect entitlement to means-tested benefits. Your home may be repossessed if mortgage repayments are not maintained. Fox Davidson does not provide equity release advice; this is offered by members of our network, Mortgage Intelligence. Our network’s equity release advisers may provide in-person appointments UK-wide. If you proceed, we will refer you to an FCA-authorised adviser. We may receive a fee for referrals.
