For many parents over 55, the home represents both a place of security and their largest financial asset. Equity release has grown in popularity as a way to unlock some of this wealth without selling the property. Whether it’s boosting retirement income, covering healthcare costs, or helping children financially, equity release can seem appealing — but it comes with major implications for inheritance and long-term finances.
This guide explains what equity release is, how lifetime mortgages work, the pros and cons for families, and what alternatives parents should consider before making a decision.
What is Equity Release and How Does it Work?
Equity release is a financial product that allows homeowners aged 55 and above to access cash tied up in their property. Unlike a traditional mortgage, you don’t need to make monthly repayments (unless you choose to). Instead, the loan and any interest owed are repaid from the eventual sale of your home — usually when you pass away or move into long-term care.
This makes it attractive for parents on fixed retirement incomes, but it can reduce the inheritance available to children and may impact eligibility for benefits.
Types of Equity Release
There are two main types of equity release:
1. Lifetime Mortgage
- You borrow a tax-free lump sum against your property while retaining ownership.
- Interest is charged (usually fixed) and compounds over time, increasing the debt.
- No repayments are required during your lifetime, though some plans let you pay interest partially to control the balance.
- The loan is settled from the sale of the home after death or moving into care.
Key point: Lifetime mortgages allow you to stay in your home, but the debt can grow quickly.
2. Home Reversion Plan
- You sell part or all of your home to a provider at below market value in return for cash or ongoing income.
- You continue to live in your home rent-free.
- When the property is sold, the provider takes their agreed share of the sale price.
Key point: Home reversion avoids interest costs but reduces ownership, and the value you receive is typically much lower than selling on the open market.
Mobile-Friendly Table: Lifetime Mortgage vs Home Reversion
| Feature | Lifetime Mortgage | Home Reversion Plan |
|---|---|---|
| Ownership | You keep ownership of your home | You sell part/all of your home |
| Repayments | No monthly repayments (unless optional) | No repayments, but you give up ownership |
| Interest | Compounded, grows over time | None |
| Inheritance impact | Reduced, unless you make partial interest payments | Reduced, as provider owns a share |
| Flexibility | Can transfer if moving house (subject to conditions) | Less flexible, provider owns part of home |
| Eligibility age | From 55 | Usually from 60 |
| Cash received | 20%–60% of property value (loan) | Lower lump sum than actual share value |
Who Can Apply for Equity Release?
- Age: If you’re over 55 and exploring flexible mortgage options for older buyers, there are several competitive products designed to suit different retirement goals.
- Ownership: You must own your home outright or have only a small remaining mortgage.
- Property type: Some providers restrict equity release on flats, leaseholds, or certain construction types.
Parents should weigh their current and future costs, including care fees, retirement income, and family support needs, before applying.
Costs of Equity Release
Equity release is not cheap. Costs include:
- Interest rates: Currently around 6% on average for lifetime mortgages. Compounding means a £50,000 loan could double in 10 years.
- Fees: Arrangement fees (1–2% of the loan), legal fees, valuation fees, and possible broker charges.
- Reduced inheritance: Both options reduce what your children can inherit.
Pros and Cons
| Pros | Cons |
|---|---|
| Access a tax-free lump sum while continuing to live in your home; no mandatory monthly repayments (unless you choose to make them). | Interest compounds over time, increasing the total debt and reducing the inheritance available to your beneficiaries. |
| You retain ownership of your property and may benefit from long-term house price growth. | Fees can be significant (arrangement, valuation, legal, advice) and should be factored into your cost-benefit analysis. |
| Flexible options exist (e.g., voluntary interest payments or partial repayments) to help control the balance and protect inheritance. | May affect eligibility for certain means-tested state benefits and could impact future borrowing flexibility. |
| Many plans allow transfer (“porting”) to a new property, subject to lender criteria, if you later decide to move. | Early repayment charges (ERCs) can apply if you repay early outside permitted terms or move to a property the lender won’t accept. |
| Pros | Cons |
|---|---|
| Allows you to unlock cash from your home without taking on debt or paying interest, making it a safer choice for those who dislike borrowing. | You’ll need to sell a portion or all of your property below market value, meaning you receive less money than the share is actually worth. |
| You can continue living in your home for life, rent-free, while retaining a guaranteed right of residence in the property. | The share you sell belongs permanently to the provider — if property prices rise, your family won’t benefit from that growth on the sold portion. |
| No monthly repayments are required, and there’s no risk of compounding interest as there is with a lifetime mortgage. | Plans are often less flexible than lifetime mortgages and may take longer to set up due to property valuation and legal checks. |
| Provides certainty for inheritance planning because the remaining percentage of your property will always belong to your estate. | Your estate must sell the home (or buy back the provider’s share) when you pass away or move into long-term care to repay the provider’s entitlement. |
Alternatives to Equity Release for Parents
Before committing, parents should consider these alternatives:
- Downsizing: Selling and moving to a smaller property frees up cash while retaining ownership.
- Retirement mortgages: Some lenders offer retirement interest-only products.
- Unsecured personal loans: May be cheaper for small sums.
- Family support: If you’re considering a joint purchase or shared ownership arrangement, a JBSP mortgage (Joint Borrower Sole Proprietor) can be a flexible way for families to buy together without transferring property ownership.
- Extending existing mortgages: Some lenders allow longer terms or specialised retirement interest-only mortgages, helping parents over 55 borrow beyond retirement without needing equity release.
Key Questions Parents Ask About Equity Release
Will equity release affect my children’s inheritance?
Yes. Both lifetime mortgages and home reversion reduce what you pass on, though lifetime mortgages may allow partial repayments to preserve more.
Can I still live in my home?
Yes. Both options allow you to stay in your property until death or moving into care.
Should I seek professional advice?
Absolutely. Equity release is a regulated product, and advice from a qualified adviser is mandatory.
Summary: Is Equity Release Right for Parents Over 55?
Equity release can provide much-needed funds for parents in retirement, especially those wishing to support their children or manage day-to-day costs. However, it is not without risk. Inheritance will almost certainly be reduced, fees can be high, and alternatives may be better for some families.
For parents exploring premium lending solutions or high-value properties, our guide to million-pound mortgages explains how large-scale equity release compares to bespoke high-net-worth options.
The best step is to:
- Compare lifetime mortgages vs home reversion.
- Consider alternatives like downsizing or retirement mortgages.
- Seek regulated advice to make the right choice for your family.
By planning carefully, equity release can offer financial security in later life while balancing your family’s long-term inheritance goals.
