Equity Release, How Lifetime Mortgages and Home Reversion Plans Work

Important Notice

Equity release is a regulated financial product. This guide provides general information only and does not constitute financial advice. You must take independent financial and legal advice before entering into any equity release arrangement. Seek advice from an adviser authorised and regulated by the Financial Conduct Authority (FCA) who specialises in later life lending.

What Is Equity Release?

Equity release is a collective term for financial products that allow homeowners aged 55 or over (some lenders require age 60 or 65) to access the equity, the value, tied up in their property, without having to sell their home and move out. The money can be received as a lump sum, in regular drawdowns, or a combination of both.

There are two main types: lifetime mortgages and home reversion plans.

Lifetime Mortgages

A lifetime mortgage is a loan secured against your home. It is the most widely used form of equity release. Key features:

• You remain the legal owner of your home throughout
• No monthly repayments are required (though some products allow voluntary repayments)
• Interest accrues on the outstanding balance, typically on a compound basis ("roll-up")
• The loan and accumulated interest are repaid when the last borrower dies or moves into long-term care, usually from the sale of the property

The compounding of interest is an important consideration. On a fixed interest rate, a loan can more than double over 15–20 years if no repayments are made.

Home Reversion Plans

A home reversion plan involves selling a percentage (or all) of your home to the reversion provider in exchange for a lump sum or regular income, while retaining the right to continue living in the property rent-free until you die or move into care.

The purchase price offered by the provider will be significantly below market value, this discount reflects the provider's risk that they cannot access the proceeds until an unknown future date.

The Equity Release Council

The Equity Release Council (ERC) is the industry body for the equity release sector. Products bearing the ERC logo must comply with the Council's product standards, which include:

• A **no negative equity guarantee**, you will never owe more than the value of your home
• The right to remain in your home for life or until you move into long-term care
• The right to move to another suitable property and transfer the plan
• Fixed or capped interest rates for lifetime mortgages

Always check that any product you consider carries the ERC quality mark.

FCA Regulation

Both lifetime mortgages and home reversion plans are regulated by the Financial Conduct Authority. Advisers who recommend equity release products must hold the FCA-required later life lending qualification. You can check whether an adviser or firm is FCA-authorised on the FCA Register at register.fca.org.uk.

Impact on Benefits and Tax

Equity release can affect your entitlement to means-tested state benefits (such as Pension Credit and Council Tax Reduction) if the funds released increase your savings above the relevant threshold. A qualified financial adviser must assess this as part of their recommendation. Your estate and inheritance tax position may also be affected.

Alternatives to Equity Release

Before proceeding, consider whether other options meet your needs: downsizing, a standard residential mortgage (if your income supports it), local authority grants for home adaptations, or support from family. An independent financial adviser regulated by the FCA will explore all alternatives with you before recommending equity release.