Equity Release Calculator UK 2025

What Is Equity Release?

Equity release is a financial product designed for UK homeowners aged 55 and over that allows them to access cash from the value built up in their home. Rather than selling the property, homeowners can unlock a portion of their equity while continuing to live in the property for the rest of their lives. The money released can be taken as a lump sum, as regular smaller amounts through a drawdown facility, or as a combination of both.

There are two main types of equity release plan available in the UK in 2025: lifetime mortgages and home reversion plans. The vast majority of plans taken out today are lifetime mortgages, which account for over 95% of the market.

Types of Equity Release Plans

Lifetime Mortgages

A lifetime mortgage is a loan secured against your home. You retain full ownership of the property. Interest is charged on the loan at a fixed or capped rate. In most cases, there are no monthly repayments; instead, the interest is added to the loan balance each month (rolled up), and the total amount owed is repaid from the proceeds of the sale of your home when you die or move into long-term care. Some plans allow you to make optional monthly interest payments to prevent the balance growing.

Modern lifetime mortgages approved by the Equity Release Council must include a no-negative-equity guarantee, meaning you can never owe more than the value of your home, regardless of how long you live or what happens to property prices. They must also allow you to move to another suitable property without penalty (portability).

Home Reversion Plans

With a home reversion plan, you sell part or all of your property to a reversion company in exchange for a tax-free lump sum or regular income. You receive less than the market value of the share you sell (typically 20% to 60% of market value), but you can continue living in your home rent-free for life. When the property is eventually sold, the reversion company receives their share of the proceeds.

Home reversion plans are less common than lifetime mortgages and tend to be less flexible. The discount applied to the property value can be significant, but if property prices rise substantially, the reversion company shares in that growth on the proportion they own.

How Much Equity Can You Release?

The amount you can release depends primarily on your age and the value of your property. Equity release providers use loan-to-value (LTV) tables that increase with age. As a general guide:

• Age 55: approximately 20-25% of property value
• Age 60: approximately 25-30% of property value
• Age 65: approximately 30-35% of property value
• Age 70: approximately 35-40% of property value
• Age 75: approximately 40-47% of property value
• Age 80: approximately 47-55% of property value
• Age 85+: approximately 55-60% or more

If you have an outstanding mortgage or other secured debt on the property, this must be repaid from the equity release funds first. Our calculator deducts your outstanding mortgage from the maximum available to show your net available equity.

The Impact of Compound Interest

The most important concept to understand with a lifetime mortgage is the power of compound interest. Because most plans involve rolling up interest rather than making monthly payments, the balance can grow substantially over time. At an interest rate of 5.5% per year, an initial loan of £100,000 would grow to approximately:

• After 10 years: approximately £170,800
• After 15 years: approximately £226,000
• After 20 years: approximately £299,000
• After 25 years: approximately £395,000

This is why it is essential to consider how equity release will affect your estate. Making voluntary interest payments, even partial ones, can significantly reduce the amount of interest that accumulates and preserve more of your home's value for your heirs.

Equity Release and Inheritance Tax

Releasing equity reduces the value of your estate, which may in turn reduce or eliminate any Inheritance Tax (IHT) liability. In 2025/26, the IHT nil-rate band is £325,000 per person, with an additional residence nil-rate band of £175,000 when a property is left to direct descendants, giving a potential combined threshold of £500,000 per individual (or up to £1 million for a married couple). Reducing the estate value through equity release can bring it below these thresholds.

However, using equity release specifically to reduce IHT requires careful planning and independent advice, as there are specific rules about gifts made within 7 years of death. Spending the released funds rather than gifting them is generally the safer approach from an IHT perspective.

Costs of Equity Release

Setting up an equity release plan involves several costs that should be factored into your decision:

• Arrangement fee: Charged by the lender, typically £600 to £1,500 or sometimes a percentage of the loan
• Valuation fee: To assess the property's value, typically £150 to £1,000
• Solicitor's fees: Legal advice is compulsory for equity release, typically £800 to £1,500
• Financial adviser fee: Independent advice is strongly recommended, typically £1,000 to £3,000 or a percentage of the loan
• Early repayment charges: If you repay the mortgage early, charges can be substantial, sometimes 20-25% of the original loan in the early years

Alternatives to Equity Release

Before proceeding with equity release, it is worth considering alternatives. Downsizing to a smaller property releases equity while eliminating ongoing interest costs, though it involves the upheaval of moving. Renting out a room through the Rent a Room scheme provides up to £7,500 per year tax-free. Benefits entitlement checks may reveal unclaimed benefits. Retirement interest-only mortgages allow you to make interest payments each month, preventing the debt from growing, and are available to older borrowers who may not qualify for standard mortgages.

Frequently Asked Questions