How Does Equity Release Work? The Numbers Nobody Shows You
Equity release is a way for homeowners aged 55 and over to take tax free cash out of their property without selling it or moving out. Nothing is usually repaid month to month. The loan, plus all the interest that has built up on it, is repaid when the last borrower dies or moves into long term care.
Every guide explains that mechanism. Almost none show you the pounds. This page does two things nobody selling the product will do for you: it models what a real release costs over twenty five years in cash, and it names the borrowers who should walk away. Knox Mortgages does not sell equity release and earns nothing if you take one, which is exactly why we can be blunt about it.
How does equity release work?
You borrow against the value of your home, keeping full ownership and the right to live there for life. You make no compulsory monthly payments, so interest is added to the balance each year and then charged interest itself the following year. This is rolled up interest, and it is the single most important thing to understand about the product.
When the last surviving borrower dies or moves permanently into care, the house is sold and the loan plus accumulated interest is repaid from the proceeds. Whatever is left goes to your estate. If the sale does not cover the debt, a no negative equity guarantee means neither you nor your family owe the shortfall.
You can take the money as a single lump sum, or set up a drawdown facility where you take an initial amount and leave the rest reserved. Drawdown costs less because interest only starts on money you have actually taken. In the second quarter of 2026 the average new lump sum was £113,779 and the average initial drawdown was £63,642, per Equity Release Council figures published on 3 August 2026.
What are the two types of equity release?
There are two, and they are very different products.
- Lifetime mortgage. A loan secured on your home. You keep 100% ownership. Minimum age 55. This is what almost the entire market uses.
- Home reversion plan. You sell a share of your home to a provider for a lump sum and live there rent free as a tenant. Minimum age 60, often 65. You do not get market value: providers typically pay 20% to 60% of the true worth of that share depending on your age, so at 65 you might receive around 30% to 40% of what it is actually worth.
Home reversion is rare for a reason. You give up a fixed percentage of the property permanently, including all future growth on it. If prices rise strongly, the provider captures that gain, not your family.
How much equity can I release?
The maximum is driven almost entirely by the age of the youngest borrower, because lenders are pricing life expectancy. Property value, property type, health and any existing mortgage adjust the figure.
| Age of youngest borrower | Typical maximum release | On a £350,000 home |
|---|---|---|
| 55 | around 25% to 28% | £87,500 to £98,000 |
| 60 | around 30% | £105,000 |
| 65 | around 35% | £122,500 |
| 70 | around 40% | £140,000 |
| 75 | around 45% | £157,500 |
| 80 and over | 50% or more | £175,000 or more |
Most lenders need the property worth at least £70,000, though many prefer £100,000 or more, and it must be your main UK residence in habitable condition. Medically enhanced plans release more if you have qualifying health or lifestyle conditions, because they shorten the expected term.
What does £70,000 of equity release actually cost?
This is the section every other page skips. Take a 65 year old with a £350,000 home releasing £70,000 as a lump sum at 6.5% fixed for life. That rate is mid market in August 2026: the lowest available is around 6.20%, the average advertised around 7.2%. Assume the house grows 3% a year and no voluntary repayments are made.
| Years | Age | Loan balance | House value | Left for the estate |
|---|---|---|---|---|
| 0 | 65 | £70,000 | £350,000 | £280,000 |
| 5 | 70 | £95,900 | £405,700 | £309,800 |
| 10 | 75 | £131,400 | £470,400 | £339,000 |
| 15 | 80 | £180,000 | £545,300 | £365,300 |
| 20 | 85 | £246,700 | £632,100 | £385,400 |
| 25 | 90 | £337,900 | £732,800 | £394,900 |
Read the last two columns together. Borrowing £70,000 at 65 and dying at 85 costs your family £246,700 of inheritance. Living to 90 costs them £337,900. Provider calculators do not display that number, and it is the only one that matters if leaving something behind is important to you.
The rule worth memorising: at current rates the debt roughly doubles every 10 to 11 years. At 6.20% it doubles in about 11.5 years, at 6.5% in about 11 years, at 7.24% in just under 10. On a loan with no end date, one point of rate is tens of thousands of pounds.
Two things soften this. Since March 2022 every plan meeting Equity Release Council standards must allow penalty free voluntary partial repayments, so paying even the interest in some years flattens the curve dramatically. A drawdown plan on the same facility also accrues far less, because you are charged only on what you have drawn.
Who should not take equity release?
Every other guide tells you who is eligible. Almost none tells you who should say no. Here are six profiles where equity release is usually the wrong answer.
- You are 55 to 60 and in good health. A thirty five year term at compounding rates is brutal. Releasing at 57 rather than 72 can more than triple the eventual cost of the same cash.
- You have provable income. If you can evidence enough pension or earned income to service interest, a retirement interest only mortgage keeps the debt flat instead of compounding.
- You are on means tested benefits. Cash in your account counts as capital and can wipe out Pension Credit, Council Tax Reduction and Housing Benefit, plus the passported extras.
- Your children are counting on the house. If an inheritance is part of a family plan, that plan needs rewriting before, not after. Have the conversation with them in the room.
- You want the money for something discretionary. A conservatory, a car or a holiday funded at 6.5% compounding for twenty five years is one of the most expensive ways to buy anything in Britain.
- You are likely to move within a few years. Early repayment charges can run to five figures. Porting is a right under Council standards, but only to a property the lender finds acceptable.
None of that makes equity release a bad product. For an 80 year old with no other assets, no dependants relying on the estate and a genuine income shortfall, it can be exactly right. It is a specific tool for a specific situation, not a general purpose retirement plan.
What are the alternatives to equity release?
These should be ruled out properly first, and provider written guides rarely compare them honestly.
| Option | Minimum age | Monthly payments | What happens to the debt | Best suited to |
|---|---|---|---|---|
| Lifetime mortgage | 55 | None required | Compounds until death or care | Older borrowers with no serviceable income |
| Retirement interest only (RIO) | Usually 55 | Interest only, must be affordable | Stays flat at the original amount | Anyone with provable pension income |
| Standard later life remortgage | Varies by lender | Capital and interest | Reduces to zero | Borrowers still working or with strong income |
| Downsizing | Any | None | No debt at all | Anyone in a house larger than they need |
| Family lending or gifting | Any | By agreement | Stays within the family | Families who would inherit anyway |
| Home reversion | 60 | None | No debt, but a share is gone permanently | Very few people |
RIO deserves particular attention. Rates in 2026 sit broadly in the 5% to 7% range, comparable to or better than lifetime mortgage rates, and because you pay the interest monthly the capital never grows. The catch is affordability: you must evidence income that survives the death of a spouse, which is where many applications fail. Check how much you could borrow conventionally before assuming equity release is the only route. If you already have a mortgage, a remortgage or product transfer may raise what you need at a fraction of the long term cost.
How does equity release work when you die?
Nothing is due while either borrower is alive and living there. If one borrower dies and the other remains, the plan continues unchanged. On the death of the last surviving borrower, your executors notify the lender and the estate normally has around twelve months to repay, by selling the house or settling from other funds.
The lender is repaid the original loan plus all rolled up interest, and anything remaining passes to your beneficiaries under your will. If the sale falls short, the no negative equity guarantee means the lender writes off the difference. Your family cannot inherit the house free of the loan, but they can repay the balance from their own funds and keep the property, which is common where the family home matters more than the cash.
Does equity release affect your benefits?
Yes, and this catches people out more than any other issue. The released cash is tax free, but once it lands in your account it counts as capital for means tested benefits.
For Pension Credit, capital above £10,000 reduces entitlement by £1 a week for every £500 held over that threshold, with no upper cut off. For Universal Credit, Housing Benefit and most Council Tax Reduction schemes, capital above £16,000 removes entitlement completely. A £40,000 release is enough to end Pension Credit and Council Tax Reduction outright, and with them the passported extras such as the Warm Home Discount and help with NHS costs. Drawdown reduces this risk because you hold less cash at any one time. The State Pension and Attendance Allowance are not means tested and are unaffected.
What protections does the Equity Release Council give you?
Any plan from a Council member must meet six product standards, updated to Standards 2.0 in May 2025:
- The interest rate is fixed for life, or variable with a lifetime cap.
- You have the right to remain in your home for life, or until you move into long term care.
- You have the right to move to another acceptable property, taking the plan with you.
- A no negative equity guarantee, so your estate can never owe more than the property sells for.
- The right to make penalty free voluntary partial repayments, mandatory on all new plans since March 2022.
- Early repayment charges are waived if you move into long term care, including moving in with relatives to receive care where a medical practitioner certifies it.
Only take a plan carrying these standards, and only through an adviser holding the specific equity release qualification. Regulated advice is mandatory and a solicitor must act for you independently.
What does equity release cost in fees?
On top of the interest, budget for these one off costs:
- Advice fee: commonly £1,000 to £2,000, sometimes offset by lender commission.
- Valuation fee: £0 to around £600, often free on lender promotions.
- Legal fees: typically £700 to £1,500 for independent conveyancing.
- Lender arrangement or completion fee: £0 to around £700.
- Early repayment charges: potentially five figures if you repay outside the permitted allowances.
Market context as at August 2026: the Equity Release Council reported £597m of lending in Q2, up 4% on the quarter, across 13,489 customers. The Bank of England held Bank Rate at 3.75% on 30 July 2026, a fifth consecutive hold, with the next decision on 17 September. Lifetime mortgage rates are priced off long term gilt yields rather than Bank Rate, so they do not move in step with it.
Why we are showing you this
The top ten results for this question are product providers, lenders selling the alternative, charities and the trade body. No independent whole of market broker appears, and the pages written by companies that sell lifetime mortgages do not disclose that they sell lifetime mortgages.
Knox Mortgages is authorised for mortgage and protection business. We do not arrange lifetime mortgages and have no commission at stake here. What we can do is work out whether a later life mortgage, a RIO, a remortgage or doing nothing is the better answer, and refer you to a qualified equity release specialist only if that genuinely turns out to be right. Because equity release shrinks the estate, it is also a sensible moment to review whether life insurance written in trust could replace some of what the loan consumes, alongside critical illness cover and income protection if you or a partner still work. We are based in Greater Manchester and work with clients nationwide, so meeting a mortgage broker in Manchester in person is an option. If your plans involve property investment rather than releasing capital to live on, our buy to let and day one remortgage pages are more relevant.
Frequently asked questions
What does Martin Lewis say about equity release?
MoneySavingExpert’s published guidance treats equity release as an expensive option that should be a later resort rather than a first move. It emphasises the compounding effect of rolled up interest, urges readers to check downsizing and unclaimed benefits first, and stresses using only Equity Release Council members and taking independent legal advice. It does not say the product is never suitable, only that it is easy to take for the wrong reasons.
What’s the downside of equity release?
The main downside is compounding cost. Because you make no monthly payments, interest is charged on interest, and the balance roughly doubles every 10 to 11 years at current rates. It reduces inheritance substantially, can end means tested benefits, and carries early repayment charges if you exit early. You also keep full responsibility for maintaining and insuring the property.
How much do I pay back on an equity release?
You repay the original amount plus all accumulated interest, from the sale of the property after the last borrower dies or moves into care. On £70,000 released at 6.5%, that is roughly £131,400 after 10 years, £246,700 after 20 years and £337,900 after 25 years. Voluntary partial repayments, permitted penalty free on all plans since March 2022, reduce these figures significantly.
Who owns the property after equity release?
With a lifetime mortgage you remain the legal owner and the lender simply registers a charge against the title, exactly as a normal mortgage lender does. With a home reversion plan you sell a share of the property to the provider, so ownership is split and you live there as a rent free tenant for life.
How does equity release work under 55?
It does not. Lifetime mortgages start at 55 and home reversion plans at 60. Under 55 you are looking at a conventional remortgage, a further advance, a secured loan or downsizing. If your situation is complicated by credit history, a specialist lender is usually a better route than waiting to turn 55.
How does equity release work with no mortgage?
Owning outright is the simplest case. The full property value counts toward the release calculation and the entire sum comes to you as tax free cash. If you still have a mortgage, the outstanding balance must be cleared from the release first, and only the remainder reaches your account.
Can I move house after taking equity release?
Yes. Every plan meeting Equity Release Council standards carries the right to port to another property, provided the lender finds the new property acceptable. Flats above shops, ex local authority housing, non standard construction and retirement housing with restrictive covenants are all commonly declined. If you are likely to move, discuss it with a specialist before you commit.
Is equity release a good idea?
It depends almost entirely on your age, your income and whether an inheritance matters to you. For an older homeowner with no serviceable income, no dependants relying on the estate and a genuine need, it can work well. For someone in their late fifties with a pension income who could service a RIO instead, it is usually an expensive mistake. Model the twenty year cost before deciding, not the day one lump sum.
Written by Jake Stott, Director, Knox Mortgages. Published 5 August 2026. Last reviewed 5 August 2026. Figures verified against Equity Release Council Q2 2026 market data, Bank of England Bank Rate as at 30 July 2026, and lifetime mortgage rates as at August 2026.
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