Equity release explained: a primer for financial advisers
9 May 2025
As property wealth continues to outpace income growth in retirement, many older clients find themselves “property-rich but cash-poor.” Equity release offers a way for homeowners aged 55+ to access some of the capital tied up in their homes, without needing to sell or move. For financial advisers exploring this market, understanding the fundamentals is crucial for guiding clients through informed, appropriate decisions.
What is equity release?
Equity release refers to a range of financial products that allow homeowners to access tax-free cash from the value of their property. It’s most commonly used by older clients who want to supplement retirement income, pay off existing debts, or support family members-without giving up the right to live in their home.
It’s a regulated product under the FCA, and advisers must hold the appropriate qualification to advise on it. There are two main types:
1. Lifetime Mortgage
A lifetime mortgage is the most common form of equity release in the UK. It involves borrowing against the property’s value while retaining full ownership. Interest is charged on the loan, and repayment is typically deferred until death or entry into long-term care.
Key Features:
- Client retains ownership of the home.
- No mandatory monthly repayments, though many plans allow voluntary interest or capital repayments.
- Compound interest accrues if repayments are not made.
- A portion of the property’s value can be ring-fenced to protect future inheritance.
- No Negative Equity Guarantee (if arranged via a provider who is a member of the Equity Release Council).
Advice tip: Model the long-term impact of interest roll-up and explore flexible plans that allow partial repayments to manage the loan size.
2. Home Reversion Plan
A home reversion involves selling part (or all) of the client’s home to a provider in exchange for a lump sum or regular income. The client continues to live in the property rent-free for life, but ownership is partially or fully transferred.
Key Features:
- The client sells a percentage of their home upfront.M
- They retain the right to live in the property for life under a lifetime lease.
- The sale value is usually below market rate due to the deferred possession.
- When the property is sold (upon death or entry into care), the proceeds are shared based on ownership proportions.
Advice tip: Home reversion plans suit clients prioritising certainty over flexibility, but they are far less common today than lifetime mortgages.
How equity release works in practice
- Eligibility: Clients must be aged 55+ and own their home outright or have a small mortgage balance.
- Loan amount: Based on age, health, and property value. Older clients or those with health conditions may access higher amounts.
- Repayment: Typically, no repayments are made during the client’s lifetime unless they choose to. The loan and interest are repaid from the sale of the property.
- Regulatory oversight: Equity release is regulated by the FCA, and recommended plans should meet the Equity Release Council’s standards.
Client considerations and adviser responsibilities
Benefits for clients
- Access to tax-free funds for retirement needs.
- Ability to remain in their home for life.
- Potential to use funds for estate planning or reducing IHT liability.
- Flexibility with optional repayments on modern plans.
Risks and trade-offs
- Interest roll-up can significantly reduce estate value over time.
- May impact means-tested benefits such as Pension Credit.
- Potential early repayment charges if the client wants to repay early.
- Clients need to consider long-term care plans and the suitability of remaining in the home.
Advice tip: A full fact-find, benefits check, and lifetime cashflow planning exercise are essential. Clients must also receive independent legal advice before completion.
When is equity release suitable?
Equity release can be suitable when:
- Clients want to stay in their home but need liquidity.
- Other options (downsizing, borrowing, grants, or family support) are not viable.
- There is a clear plan for how the funds will support long-term objectives.
- Clients fully understand the product and its implications.
It is not suitable as a one-size-fits-all solution and should never be considered in isolation. Advisers should always explore all alternatives and ensure clients are making informed, stress-tested decisions.
Conclusion: building a foundation in later life lending
Equity release is a powerful planning tool when used responsibly and advised on appropriately. As more clients seek ways to use their housing wealth to support retirement, financial advisers are well-positioned to guide them - either by becoming qualified to advise directly, or by working with equity release specialists.
Understanding the structure, risks, and client suitability factors is key to delivering high-quality outcomes in later life advice.
