Equity release myths explained

If you have started your retirement planning, you might be considering the role your property wealth can play. With a lifetime mortgage, the most popular equity release product, you could unlock tax-free cash from your home. However, many people still have misconceptions about how it works. There are many products available on the market and a variety of flexible features to sort through, so your options are varied. This level of choice can also make things complicated and is one of the reasons why many UK homeowners over the age of 55 still believe the equity release myths. In this article, the truth about equity release is explored as seven myths are exposed, including some of the lesser-known realities and potential pitfalls of equity release that are important to understand before making a decision. If you still have questions after reading, you can also get in touch with the expert team at Royal London Equity Release Advisers, the providers of the Telegraph Media Group Equity Release Service. You can use the free equity release calculator on this page to have a free, no-obligation chat with their Information Team. Equity release myths explained Here, we debunk the seven most common myths, and shed the light on little known truths about equity release Myth 1: You can end up owing more than your home is worth The Truth: No, there are standards in place to ensure you never owe more than your home is worth. Provided you take out an equity release product that meets the standards set by the Equity Release Council, your plan will come with what is known as a no-negative-equity guarantee. This means you should not owe more than the value of your home when it is sold. Typically, once the mortgage has been repaid, any remaining funds will be paid to your estate or be distributed in accordance with your will. If the market value of your home falls to less than the amount of your lifetime mortgage, the remaining balance will be written off. This is provided that the home is sold for the best reasonably obtainable price. Myth 2: You must make monthly payments The Truth: With a lifetime mortgage, whether or not to make payments is entirely up to you. All lifetime mortgage products that meet Equity Release Council standards will allow you the right to make optional payments. These could be to clear the interest monthly or make ad hoc payments to reduce the amount owed. There will usually be a limit above which early repayment charges may apply. If you choose not to make any payments, then interest on the amount you’ve borrowed will roll up over time. This means the total amount owed can grow overtime, which may be one of the lesser-known truths about equity release. This, along with the initial amount borrowed, is only paid back when the last homeowner either passes away or moves into permanent long-term care and the home is sold. Myth 3: You can lose your house with equity release The Truth: Taking out equity release does not mean you lose ownership of your home. A lifetime mortgage is a type of product that doesn’t involve selling your home to the lender. Instead, you are borrowing against it, and you remain the owner. You will still need to meet the terms of the loan, which may include maintaining the property and insurance. The other type of equity release product, a home reversion plan, involves selling part or all of your property to a provider in exchange for a cash lump sum. Myth 4: You can’t move home with equity release The Truth: You will have the right to move home with equity release. Another standard of the Equity Release Council is portability, meaning you can take your lifetime mortgage to a new home as long as it meets the lender’s criteria. If the new home is a lower value, then you may have to pay a portion of the lifetime mortgage back, which could come with early repayment charges. Myth 5: You cannot release equity if you have an existing mortgage The Truth: Having a mortgage doesn’t mean you cannot release equity from your home. In fact, using property wealth to help pay off an existing mortgage is one of the most popular uses of equity release. Myth 6: There won’t be anything left to leave your loved ones The Truth: Lifetime mortgages have become increasingly flexible in recent years, and there are plans available which allow you to protect a portion of your equity for inheritance. Alternatively, if you don’t want your loved ones to have to wait until you die before receiving financial support from you, you could use equity release to provide them with an early inheritance. According to the Equity Release Council, customers across the market unlocked an average lump sum of £121,196 in Q1 2026. Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. If you’re considering gifting to family, you may need specialist tax advice, which is not provided by Royal London Equity Release Advisers. If you fall into the band where inheritance tax (IHT) is a consideration, equity release could help minimise your potential liability. This depends on individual circumstances and tax rules may change. Additionally, provided you live for another 7 years after making it, there may be no inheritance tax to pay on gifts to your loved ones. Using a lifetime mortgage to give a cash gift may incur an inheritance tax liability. Your adviser can discuss this with you further. Taxation advice is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority. Myth 7: It is an expensive way to borrow The Truth: Releasing equity with a lifetime mortgage doesn’t have to be expensive. There are a variety of features available that could help you to control the costs. For example, you could release your equity in stages using a drawdown facility. Or you could control the impact of interest by choosing to make optional payments. Without payments, interest will build up over time, increasing the overall amount owed. Since interest rates are fixed for life, you will always know exactly how much it might cost you. Your personal equity release adviser will also provide a personalised illustration, showing how much you could owe over time should you choose to release equity. You can use this to consider your plans and whether you want to make any payments over time. Do you have more questions about equity release? If you want to continue getting the truth about equity release, The Telegraph Media Group Equity Release Service may be able to help. By filling out the calculator on this page, you will be put in touch with the trusted providers of this service, Royal London Equity Release Advisers. Royal London Equity Release Advisers recommend plans from across the whole market, coming only from lenders that are members of the Equity Release Council. This means that you will benefit from their customer-focused standards. Their advisers will also help you to consider other financial products like retirement interest-only mortgages and traditional mortgage borrowing. Through comparing a range of options, you can find one that works for you. To begin, select how you would like to receive your guide and fill out the requested details in the calculator below. If you are interested in speaking with the Information Team, leave a phone number and they will call you back. Read more: - Guide to buying a second home - How long does equity release take? - What if I can't pay off my interest-only mortgage? The above article was created for Telegraph Financial Solutions, a member of the Telegraph Media Group. For more information please click here. Equity release is only available to homeowners that own a property within the United Kingdom. If you choose a mortgage with required payments during your lifetime, your home may be repossessed if you do not keep up with the payments. Borrowing with a lifetime mortgage or retirement interest-only mortgage will reduce the value of your estate. Receiving a cash lump sum may also affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home. The Telegraph Media Group Equity Release Service is provided by Royal London Equity Release Advisers. Royal London Equity Release Advisers is a trading style of Responsible Life Limited which is registered in England & Wales. Company No. 7162252. Registered Office: Princess Court, 23 Princess Street, Plymouth, PL1 2EX. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Responsible Life Limited is a wholly owned subsidiary of the Royal London Group who may benefit if you choose to take regulated mortgage advice. Being a wholly owned subsidiary of the Royal London Group does not alter Responsible Life Limited’s regulatory responsibilities. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,890. Their adviser will talk through the setting up costs before you choose to proceed.