Types of Equity Release

The two main types

Equity release is an umbrella term covering two distinct product types. A lifetime mortgage is a loan secured against your property — you retain ownership and repay the loan (plus interest) when the property is eventually sold. A home reversion plan involves selling a share of your property to a provider in exchange for a lump sum or income, while retaining the right to live there rent-free for life.

These products share the outcome of releasing cash from a property without requiring you to move, but the underlying structure — and the implications for your estate, your inheritance, and your ongoing relationship with your home — are quite different.

Lifetime mortgages

A lifetime mortgage is by far the most common form of equity release, accounting for over 98% of all equity release completions in the UK. It works like this: you borrow a sum of money secured against your home by a legal charge registered at the Land Registry. You retain full ownership of the property. The loan, plus interest that accumulates over time, is repaid when you die or move permanently into long-term care — typically from the proceeds of selling the property.

The defining feature of most lifetime mortgages is that no monthly repayments are required. Interest rolls up — meaning it is added to the loan balance each year, and then interest is charged on the new higher balance. This compound interest effect means the total amount owed can grow significantly over time. Some products allow voluntary partial repayments (typically up to 10–12% of the original loan annually) to limit this growth.

Lifetime mortgages come in several variants:

• Lump sum lifetime mortgage: The full loan is taken at completion. Simple and certain, but interest accrues on the full amount from day one.
• Drawdown lifetime mortgage: You take an initial sum and can draw further funds from a pre-agreed reserve as needed. Interest only accrues on amounts drawn — generally more cost-effective if you don't need all the money immediately.
• Interest-paying lifetime mortgage: You make voluntary monthly interest payments to prevent roll-up. This keeps the loan balance static and protects more of your estate, but requires sufficient income to sustain the payments.
• Enhanced lifetime mortgage: If you have certain health conditions or lifestyle factors, you may qualify for a higher loan-to-value ratio or a lower interest rate. See the section on enhanced products below.

Home reversion plans

A home reversion plan works differently. Rather than borrowing against your property, you sell a percentage share — or the whole property — to a home reversion provider. In return, you receive a cash lump sum or regular income, and you continue to live in the property rent-free for the rest of your life (or until you move into long-term care).

The important point about home reversion plans is that you receive significantly less than the market value of the share you sell. If your home is worth £300,000 and you sell a 50% share, you will not receive £150,000 — you may receive £60,000–£90,000 or less, depending on your age. The provider is accepting the uncertainty of not knowing when they will be able to sell their share, and the discount compensates for that risk.

When the property is eventually sold, the provider receives their agreed percentage of the sale proceeds — regardless of what has happened to property values in the intervening years. If your home has risen substantially in value, the provider benefits proportionally. If it has fallen, they bear the loss on their share.

Home reversion plans suit very specific circumstances and are much less common than lifetime mortgages. They may appeal to older homeowners who want the certainty of a guaranteed inheritance percentage (by retaining a defined share of the property) or those for whom interest roll-up is a particular concern.

Which type is more common, and why

Lifetime mortgages dominate the equity release market. Home reversion plans account for a tiny fraction of completions — well under 2% of the market by most estimates. This reflects several factors: the improved product features and consumer protections now built into lifetime mortgages, the generally more favourable terms available through lifetime mortgages for most applicants, and greater familiarity among advisers and consumers with the mortgage model.

Home reversion is most likely to be considered when a homeowner wants to guarantee that a specific percentage of the property's value passes to their beneficiaries, and is prepared to accept a lower upfront sum in exchange for that certainty. For the overwhelming majority of homeowners, a lifetime mortgage — particularly a drawdown product — is the more flexible and better-value option.

Within lifetime mortgages: lump sum vs drawdown

The choice between a lump sum and a drawdown lifetime mortgage is one of the most practically important decisions within the equity release process. If you need a large, one-off sum — to pay off an existing mortgage, fund a major home renovation, or make a substantial gift — a lump sum product may be appropriate.

If your need is for an income supplement over time, or if you are uncertain exactly how much you will need and when, drawdown is generally preferable. Because interest only accrues on the money you actually draw, the total cost of the loan over its lifetime is typically lower. You also retain the flexibility to draw additional funds if circumstances change — without needing to apply for a new product.

The drawback of drawdown is that the interest rate on future drawdowns may be different from the rate at which you drew your initial sum — some products fix the drawdown rate, others do not. This is an important point to check when comparing products.

Enhanced lifetime mortgages

If you have certain health conditions, have been a smoker, or have specific lifestyle factors, you may qualify for an enhanced — sometimes called impaired life — lifetime mortgage. These products offer either a higher maximum loan (higher LTV) or a lower interest rate than standard products, reflecting the fact that the loan is likely to run for a shorter period.

Conditions that may qualify for enhancement include heart disease, stroke, diabetes, certain cancers, high blood pressure, and obesity. The qualifying criteria vary between lenders, and a whole-of-market adviser will be able to assess whether enhanced products are available to you. It is always worth asking — the difference in terms can be significant.

Lifetime mortgage vs home reversion: a comparison

For a more detailed comparison of both types, see our dedicated page: Lifetime Mortgage vs Home Reversion Plan.