Understanding equity release

The most common form of equity release is a lifetime mortgage. You borrow money secured against your home. Unlike a standard mortgage, you do not have to make any monthly repayments — unless you choose to. Instead, interest is added to the loan each month (this is called "roll-up"), and the whole amount — original loan plus interest — is repaid when the property is eventually sold. This typically happens when you pass away or move permanently into long-term care.

The amount you can release depends mainly on your age and the value of your property. The older you are, the more you can typically release, because the lender's loan has less time to grow. At age 55, most people can release around 25–30% of their property's value. By age 75, this rises to around 45–50%.

The no negative equity guarantee

All products recommended by Equisure carry the no negative equity guarantee. This means that even if your loan (including rolled-up interest) eventually exceeds the sale price of your home, your estate will never owe the shortfall. The lender absorbs the loss. This guarantee is a fundamental protection and we will not recommend any product that does not include it.

Voluntary repayments

Many modern lifetime mortgages allow you to make voluntary repayments — typically up to 10% of the original loan each year — without any penalty. This can significantly reduce the amount of interest that builds up over time and preserve more of your estate. Your adviser will explain which products offer this flexibility and whether it suits your situation.

The right to remain

Taking out a lifetime mortgage does not change your right to live in your home. You remain the owner. The lender has a legal charge registered against the property, which is settled when it is sold — but you cannot be asked to leave.

Unlike a standard residential mortgage, which you repay month by month over a fixed term, a lifetime mortgage is designed to be repaid from the proceeds of your home when you die or move permanently into care. In the meantime, you remain in your home and retain ownership.

Types of lifetime mortgage

Lump sum lifetime mortgage
You receive the full amount as a single payment. Interest rolls up on the full balance from day one. This suits people who need a specific amount for a defined purpose — clearing an existing mortgage, funding home adaptations, or making a gift to family.

Drawdown lifetime mortgage
You agree a maximum facility with the lender, but only draw what you need, when you need it. Interest is only charged on the money you have actually drawn. This is often more cost-effective if you do not need everything at once, and allows you to preserve more equity in your home.

Enhanced lifetime mortgage
If you have certain health conditions or lifestyle factors — such as diabetes, heart disease, a history of smoking, or high blood pressure — you may qualify for an enhanced plan that offers a higher loan-to-value or a lower interest rate. This is worth exploring with your adviser even if your condition seems minor.

Interest-paying lifetime mortgage
You choose to pay some or all of the monthly interest, so the loan balance does not grow. This preserves more of your estate and reduces the total cost of borrowing. It requires a regular income to fund the payments and is subject to affordability assessment.

Fixed interest rates

All lifetime mortgages recommended by Equisure carry fixed or capped interest rates for life. You will always know exactly what rate applies to your loan. Rates are expressed as an Annual Equivalent Rate (AER) and are currently available from around 6.5% depending on your circumstances.

What is the Equity Release Council?

The Equity Release Council (ERC) is the trade body for the equity release industry. It sets product standards including the no negative equity guarantee, fixed/capped rates, and the right to remain. We recommend products that meet these standards on every case.

With a standard lump sum lifetime mortgage, interest starts rolling up on the full amount from day one. A drawdown plan works differently. You agree a maximum facility with the lender — say £80,000 — but you only take what you actually need straightaway. The rest sits in reserve, available to you whenever you choose to draw it.

Crucially, interest is only charged on the money you have drawn, not on the full facility. So if you draw £30,000 initially and leave £50,000 in reserve, you are only paying interest on £30,000. This can make a significant difference to how much your loan grows over time.

When drawdown works well

• You want to supplement your income rather than fund a single large purchase
• You are not sure exactly how much you will need over the coming years
• You want to keep the total interest cost as low as possible
• You may need money for future care costs or home adaptations

The drawback to be aware of

The interest rate on future drawdowns is set at the time you make each withdrawal, not at the time you take out the original plan. If rates have risen by the time you draw more money, your additional withdrawals will attract the higher rate. Your adviser will discuss this with you and help you think through how to manage drawdowns efficiently.

Access to the reserve

Drawing from your reserve is straightforward — you contact the lender and request a payment. Most lenders process drawdowns within a few working days. There is no need to reapply or go through another advice process for each drawdown, as the facility is already in place.

Equity release itself — the act of releasing money from your home — does not automatically disqualify you from benefits. However, the money you release becomes cash, and if that cash takes your total savings above certain thresholds, it can reduce or eliminate means-tested benefits.

Benefits that are means-tested

The following benefits are assessed based on your income and capital, and may be affected if you release equity:

• Pension Credit — affected if savings exceed £10,000
• Council Tax Reduction — local authority rules vary
• Housing Benefit — affected by savings and income levels
• Universal Credit — savings above £6,000 begin to reduce entitlement; over £16,000 removes it entirely
• Support for Mortgage Interest (SMI) — may be affected depending on circumstances

Benefits that are NOT means-tested

The State Pension, Attendance Allowance, Disability Living Allowance (DLA), Personal Independence Payment (PIP), and Carer's Allowance are not means-tested and are not directly affected by releasing equity.

What you should do before proceeding

Before we finalise any recommendation, your Equisure adviser will complete a full benefits assessment as part of the fact-find process. We will identify which benefits you currently receive, calculate whether equity release would affect them, and model the overall financial impact. In some cases, the loss of benefits can outweigh the advantage of releasing equity — and we will tell you honestly if that is the case.

We will also check whether you are entitled to any benefits you are not currently claiming. Many people over 55 are entitled to Pension Credit but have never applied for it. Claiming it before releasing equity can sometimes make a significant difference to your overall financial position.

Important: Benefits rules are complex and change frequently. The information above is a general guide only. Your adviser will carry out a personalised assessment for your specific situation.

We take the consideration of alternatives very seriously. The FCA requires us to, and frankly it is the right thing to do. Equity release is not the right answer for everyone, and downsizing is one of the first alternatives we explore with every client.

When downsizing may be preferable

• Your home is larger than you need or want to maintain
• You would welcome a change of location — perhaps closer to family or with less upkeep
• The difference in property values would release enough money to meet your needs
• You have no strong attachment to remaining in your current property
• You want to avoid any interest rolling up against your estate

When equity release may be preferable

• You want to stay in your home — for family, community, or emotional reasons
• The costs of moving (stamp duty, legal fees, agent fees, removal costs) would significantly reduce the benefit
• You only need a relatively small amount and a full move is disproportionate
• Your health or mobility makes moving impractical
• Downsizing would not release enough money to meet your needs

The real cost of moving

It is easy to underestimate the cost of moving home. Estate agent fees, legal fees on both sale and purchase, stamp duty (if applicable), removal costs, and the practical costs of adapting a new property to your needs can easily amount to £20,000–£40,000 on a typical property transaction. This should always be factored into any comparison with equity release costs.

Our approach

We will never push you towards equity release if downsizing is a better fit for your situation. We document our assessment of all alternatives on every case, and our compliance team reviews this before any application is submitted. Your interests come first.

When you take out a lifetime mortgage, the loan (plus any rolled-up interest) is repaid from the sale of your property when you die or move permanently into care. Whatever is left after repaying the loan belongs to your estate and passes to your beneficiaries in the usual way.

How interest affects what is left

Because interest compounds over time, the longer you live after taking out the plan, the more the loan grows. For example, £100,000 borrowed at 6.5% would grow to approximately £132,000 after five years, £174,000 after ten years, and £226,000 after fifteen years — assuming no repayments. Your adviser will model these projections in detail as part of the advice process, so you can see exactly what the impact on your estate might be.

The no negative equity guarantee

Regardless of how long you live or how much interest accumulates, the no negative equity guarantee ensures that your estate will never owe more than the property sells for. If the loan has grown larger than the property value, the lender absorbs the shortfall. Your family will never be left with a debt to repay.

Talking to your family

We strongly encourage you to have an open conversation with your family — particularly anyone who might expect to inherit — before proceeding with equity release. They do not have a right to veto your decision, and the money in your home is yours to use as you see fit. But surprises after death can cause distress and conflict. An informed family is far better than a surprised one.

Some of our clients actually find that their children are entirely supportive — particularly when the money is being used to improve quality of life, fund care, or even to make gifts to the next generation while the client is still alive to enjoy the giving.

Inheritance protection

Some lenders offer an optional inheritance protection feature, which ringfences a percentage of your property's future value and guarantees it will pass to your estate regardless of how the loan grows. This comes at a cost — either a higher interest rate or a reduced maximum loan — but may be worth considering if protecting an inheritance is a priority. Your adviser will explain the options available.

Independent legal advice

Before any lifetime mortgage application is submitted, you will be required to take independent legal advice from a solicitor. The solicitor will explain the legal implications of the plan, ensure you understand what you are signing, and confirm their advice in writing. This is a regulatory requirement and protects both you and your family.