4 Little Known Truths About Equity Release You Need to Know

Equity release doesn’t have the best of reputations. Ask around and you’ll hear that “the bank takes your house,” that “your kids will inherit debt,” or that “it’s just a last resort for people in trouble.”

It’s no wonder so many people write it off straight away!

However, here’s the frustrating part. Most of what people “know” about equity release is either out of date, only half true, or flat-out wrong.

So let’s clear the fog. At The Levels Financial, we help UK homeowners separate the myths from the reality, and in this guide we’ll walk you through the 4 little known truths about equity release that change how most people see it.

First, what actually is equity release?

Before we get into the little known truths about equity release, let’s ground ourselves in what it actually is, because half the myths come from muddled definitions.

Equity release is a way for homeowners, aged 55 or over, to access the money tied up in their property without having to sell up and move. It sits under the wider umbrella of later life lending, which also includes options like retirement interest-only mortgages.

There are two main types of equity release:

1. A lifetime mortgage is by far the most common. It’s a loan secured against your home, a bit like a normal mortgage, except you keep full ownership and you don’t have to make monthly payments if you don’t want to. The loan plus interest is typically repaid when you (or the last surviving borrower) pass away or move into long-term care.
2. A home reversion plan is the rarer option, where you sell all or part of your home to a provider in exchange for tax-free cash, while keeping the right to live there rent-free for life.

Because lifetime mortgages dominate so heavily, this guide will focus on them.

But how common is equity release?

Well, according to the Equity Release Council, UK homeowners unlocked £2.57 billion of property wealth in 2025, an 11% jump on the year before, with lifetime mortgages making up more than 99% of the market.

Property wealth also now funds roughly £1 in every £90 spent by retired households.

So, the idea of equity release being something that not many people dip their toe in is absolutely not true.

The 4 little known truths about equity release

1) You keep your home, and can still leave an inheritance

Here’s the myth that stops more people in their tracks than any other: “the lender will own my house.”

With a lifetime mortgage, that’s simply not true, and it’s one of the most reassuring little known truths about equity release.

You remain the legal owner of your home, start to finish. The lender registers a charge against the property (exactly like a standard mortgage), but they never own it. Even at the very end of the plan, the provider doesn’t take the house; they’re simply entitled to be repaid what they’re owed, usually from the eventual sale.

So, my children will get their inheritance?

Yes, this is why it’s important to be aware of the No Negative Equity Guarantee.

Any plan that meets Equity Release Council standards guarantees that you, and your estate, will never owe more than your home is worth when it’s sold, even if the loan has rolled up and the housing market has dipped. The difference gets written off. Your family cannot be chased for a shortfall.

Better still, you can actively protect an inheritance in several ways:

• Many lifetime mortgages offer an inheritance protection feature that ring-fences a fixed percentage of your home’s future value to pass on, guaranteed, no matter how the loan grows.
• You can gift money now from the funds you release, giving your family an early inheritance to get on the property ladder while you’re around to see them enjoy it (more on the tax angle of this below).
• You can make voluntary repayments to keep the balance, and therefore the erosion of your estate, under control.

So while equity release reduces the value of your estate, “reduces” and “wipes out” are very different words. You have real levers to pull.

2) Equity release doesn’t have to be just a one-off lump sum

Equity release is not a single, take-it-or-leave-it product. It’s a family of them, and the differences between them are enormous.

One of the main differences which people often don’t realise is that you can choose whether you want to take all the money at once or take a bit at a time:

• Lump sum life time mortgage = you take all the money at once
• Drawdown lifetime mortgage = you take a smaller initial amount and leave the rest in a reserve to dip into later

The important part to note here is that you’re only charged interest on the money you’ve actually taken.

That difference genuinely matters…

Imagine two homeowners who both want access to £80,000. One takes it all upfront; the other takes £30,000 now and leaves £50,000 in reserve. Years later, the second homeowner will typically owe far less, because interest hasn’t been quietly building on money they never actually needed. For a lot of people, drawdown is the quiet hero of the equity release world.

3) You’re in control – repayments, moving home and downsizing are all on the table

A lot of people assume equity release is a one-way door: take the money, lose your flexibility, done.

In reality, modern plans are built around choice, which is the third of our little known truths about equity release.

You can make penalty-free repayments

Since March 2022, every new plan meeting Equity Release Council standards must let you make voluntary partial repayments with no early repayment charge.

Many plans let you pay back up to 10% of the amount borrowed each year, and some go well beyond that.

By paying back a little each year you can significantly blunt the effect of compound interest, meaning you won’t lose as much equity in your house as quickly.

You can still move home

Most lifetime mortgages are “portable,” meaning you can transfer the plan to a new property if you move, provided the new home meets the lender’s criteria. The idea that equity release traps you in your current house is outdated; moving home is possible.

Downsizing protection

Some lenders build in a feature that lets you repay the loan in full, with no early repayment charge, if you sell to downsize after a set period.

Aviva, for example, is well known for offering downsizing protection on many of its plans, typically after around three years.

4) Being in poorer health could actually get you a better deal

In most areas of finance, poor health counts against you; however, with equity release, it can actually work in your favour.

Several lenders offer enhanced lifetime mortgages (sometimes called ill-health or medically underwritten plans).

If you have qualifying health conditions or lifestyle factors, high blood pressure, diabetes, being a smoker, and various others, you may be able to borrow more against your home, or access a lower interest rate than a standard plan would offer.

Why is this you ask? Well, lenders price these plans partly on life expectancy, and they can offer more generous terms where the plan is statistically likely to run for a shorter period.

It feels counterintuitive, and that’s exactly why it’s so easy to miss. If your health isn’t perfect, it’s genuinely worth having an advisor check whether an enhanced plan could improve what’s on offer. Plenty of people leave money, or a better rate, on the table simply because they never knew to ask.

Get in contact today if you’d like to talk through your options.

5) The cash is usually tax-free (but it can affect your benefits)

If you’ve gotten this far, here’s a bonus little known truth about equity release.

The money you release is a loan, not income, so it’s generally free of income tax and capital gains tax. You can use it for more or less anything: home improvements (the most common reason so far in 2026, cited by around 30% of borrowers, according to Canada Life UK), topping up retirement income, helping family onto the property ladder, or simply enjoying life.

The catch to watch is that holding a large lump sum in the bank, or how you use the funds, can affect entitlement to means-tested benefits such as Pension Credit or Council Tax Support.

This is another reason a drawdown plan can be smart, money left in reserve doesn’t count as savings sitting in your account. 

Is equity release right for you?

Truths are one thing; suitability is another. Equity release is a long-term commitment, and it isn’t the right answer for everyone.

It’s always important to properly consider all of the alternatives first, including:

• Downsizing to a smaller property to release capital without borrowing at all.
• A retirement interest-only mortgage or another later life lending route if you have income to support monthly payments.
• Using savings, investments or pension income before touching your home.
• Family support, if loved ones are able and willing to help.

The questions worth sitting with are simple but important: How much do I actually need, and do I need it all now? Could a drawdown plan reduce the long-term cost? What inheritance do I want to protect? Could my care needs change things later? Will this affect my benefits?

There are no wrong answers, only the ones that fit your life, which is precisely what advice is for.

Why do people release equity from their home?

With equity release, you’ll need to give a reason for releasing money from your home. Here are the most common ones we see.

Making Home Improvements

Home improvements are often about taste: a new kitchen because you’ve always wanted an island, or a knocked-through wall because the light was never quite right.

However, as we get older, the motivation tends to shift. Changes start to be driven less by what we’d like and more by what we need, and that’s a different kind of project to plan for.

Health is the most common trigger. A hip replacement or reduced mobility can turn a familiar staircase into a daily obstacle, and suddenly a downstairs bathroom, a walk-in shower or a stairlift moves from “one day, maybe” to something worth doing now.

For others, it’s circumstances rather than health. Adult children move back home, grandchildren need looking after, or an elderly parent comes to live with you, and a spare room becomes a bedroom, or the garage becomes an annexe.

These renovations can be quite expensive and are difficult to plan for, which is where releasing equity to fund them can come in handy.

Helping Your Children Buy a House

Getting on the property ladder has become genuinely difficult for younger buyers.

The average age of a first-time buyer has now reached 34, according to Skipton Building Society.

It’s why so many first-time purchases now involve help from family, the so-called “Bank of Mum and Dad”, or increasingly, the Bank of Grandma and Grandad.

Equity release offers one way to provide that help. Rather than selling up or moving somewhere smaller, you unlock a portion of the value tied up in your home and pass it on as a gift towards a deposit, helping your children or grandchildren buy a place of their own while you carry on living in yours.

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