Property prices have risen considerably in recent years, meaning you could have a large portion of your wealth tied up in your home.
The latest figures from the Office for National Statistics (ONS) show that between April 2020 and March 2022, net property wealth made up 40% of all household wealth. This figure could be even higher today.
As a result, more people are choosing to access property wealth through equity release to fund important goals.
The Equity Release Council recently published figures showing that the equity release market grew by 11% in the last year. By the end of 2025, the average amount released had risen to £123,174 – a 5.7% increase on the previous year.
There are advantages to this strategy if you want to access funds in later life. However, equity release is not always suitable, and there are downsides to be aware of.
Read on to learn whether equity release could be an important part of your financial plan.
Equity release could provide additional funds in retirement
A lifetime mortgage is the most common type of equity release, accounting for 99% of the market, according to the Equity Release Council.
You will take out a loan against the value of the home and accrue interest as you would with a normal mortgage, although the interest rate may be higher with equity release. Normally, you won’t be required to make regular repayments, but you can if you want to.
Then, when the home is sold – usually after you pass away or move into residential care – the loan and interest are repaid.
Any provider registered with the Equity Release Council must offer a no negative equity guarantee. This means that the total amount owed, including interest, can’t exceed the value of the property.
So, a lifetime mortgage effectively allows you to access the wealth in your home now, meaning you can use it to fund your day-to-day retirement expenses. This is especially important as the Equity Release Council reports that 38% of future retirees are on track for a retirement income that is below the “minimum standard”.
As such, equity release could help you make up a shortfall in your retirement savings.
Alternatively, you might use it to support other goals. For instance, the Equity Release Council found that:
- 26% of people used the funds to clear their mortgage
- 21% paid for home improvements
- 6% spent on holidays
- 4% bought a new car.
If you are concerned about how you might fund your retirement, equity release could give you an influx of cash, which means you may be less likely to make sacrifices to your lifestyle.
Releasing wealth from your home could help you mitigate Inheritance Tax
Another reason equity release may be growing in popularity is that the government recently announced changes to Inheritance Tax (IHT) that could increase the amount families pay.
Currently, any remaining funds in your pension fall outside the estate, giving you a useful opportunity to pass wealth to your loved ones without IHT. From April 2027, this exemption will end, and your pensions will be subject to IHT.
Once this change comes into effect, it could be more difficult to shield your wealth from IHT.
Fortunately, gifting wealth to loved ones while you’re alive could reduce the size of your estate, meaning they pay less IHT in the future. However, there are rules to follow, and gifts are only exempt from IHT if they come under specific allowances and exemptions.
Any gifts that don’t fall under one of these rules are considered potentially exempt transfers (PETs). These gifts only become IHT-free if you survive for seven years after giving them. If you pass away within this time, there might be some IHT to pay.
By making use of these lifetime gifting rules, you could potentially reduce the IHT your family pays. However, if much of your wealth is tied up in your property, your loved ones could still face a large bill.
Using equity release means that you can access your property wealth and pass it to your loved ones now, benefiting from the gifting exemptions described above.
When you eventually sell the property, most or all the value will be paid back to the equity release provider, meaning it doesn’t form part of your estate.
As such, equity release may help you fund your retirement and pass more wealth to your loved ones while you are alive. But there are potential challenges to consider.
4 reasons why equity release may not be suitable for your financial plan
1. High interest payments could reduce the amount you leave to loved ones
As the value of your home rises, the total size of your estate grows, meaning you have more to leave to loved ones.
However, if you take out a lifetime mortgage, you will generate interest over time and if you’re not making monthly repayments, this interest could quickly add up.
This means that much of the additional wealth from the appreciation of your property could be lost to interest. Depending on the value of the property when it’s sold and the amount owed, the equity release provider may take all of the proceeds.
In some cases, this could mean your loved ones receive less overall than they would have done if you left the property to them.
2. You could limit your options for moving in the future
If you opt for equity release but later decide you want to downsize or move to a different area, your options could be limited.
Many equity release providers require early repayment charges (ERCs) if you want to repay the loan sooner than initially planned.
This could make moving far more expensive. The same is true if you decide to clear the rest of the loan early so you can retain the home and pass it to your loved ones.
3. There may be restrictions on how you use the property
Some equity release providers also include specific conditions about how you can use the property. For instance, you may not be allowed to make certain large-scale renovations, leave the house unattended for a long period, or rent it out as a holiday let.
Depending on your plans in later life, these restrictions could get in the way of certain goals.
4. You could lose access to certain means-tested benefits
You may receive support from the government to help with costs in later life, particularly if you require care of some kind.
However, a large influx of cash from equity release could affect your eligibility for certain means-tested benefits. It’s worth considering this and calculating whether you will be better off after releasing equity.
Get in touch
Equity release may have advantages, but it’s not always suitable for your unique situation. We can help you explore various ways to fund retirement and pass wealth to your loved ones without using equity release.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration.