Equity Release Explained: What Happens to Your Property When You Die?

If equity release has made it onto your radar, then you’re probably left asking yourself a host of questions: “what happens to my home when I die?”, “Will my family have to sell the house?” and “What happens to the debt?”

Don’t worry. – All of these questions are perfectly natural to have, and are all questions that we’ve helped many people answer before.

Firstly, the good news – equity release can offer a lot of financial freedom for those in later life, by unlocking money that is tied up in your property.

With that said, it’s essential to understand the complete picture of how equity release works and what will happen to your plan and funds when you pass away.

In this article, we’ll explain every step of equity release, including what happens to your property when you die, and everything you need to know about protecting your estate, your loved ones, and your peace of mind. Let’s begin.

What is Equity Release and How Does It Work?

Equity release is a mortgage product that allows homeowners to access funds that would otherwise be tied up in their home.

Most importantly, while the borrower will release equity and gain funds from their home, this unique product still allows the borrower to remain living in their house until they either pass away or are moved into long-term care.
There are many reasons why people choose to take out an equity release plan. Most commonly, equity release is used to supplement retirement income, pay for home improvements, or to help family members financially.

There are two main types of equity release:

• Lifetime mortgages
• Home reversion plans

Both options allow you to access tax-free cash from your property, but with different implications.

So, how does equity release work?

Let’s first explore the main differences between the two equity release products.

Understanding Lifetime Mortgages: The Most Popular Equity Release Option

Lifetime mortgages are by far the most common equity release product in the UK.

With a lifetime mortgage plan, you will borrow a percentage of your home’s value, and the loan is repaid from the sale of the property after you pass away or go into care.

To be eligible, you typically need to be aged 55 or over and own your home. The amount you can borrow will directly depend on your age, property value, and provider criteria.

There are several flexible features, including:

• Interest-only options (to manage interest build-up)
• Drawdown facilities (to release funds in stages)
• Inheritance protection features (which we’ll explain later)

In addition to this product’s flexibility, many lifetime mortgage providers will also allow voluntary repayments without early repayment charges. This can help manage the balance and interest, reducing the total impact on your estate.

It is important to note that the interest follows a compound structure, which means it grows over time if left unpaid. This aspect of lifetime mortgages is crucial to both understand and plan for. Working with a financial adviser can help you consider all your options, whether you want to service the interest or let it accumulate.

Home Reversion Plans Explained: How They Compare to Lifetime Mortgages

The other type of equity release plan is referred to as a Home Reversion plan.

While home reversion vs lifetime mortgage has been a common debate over the years, today, lifetime mortgages are often recommended as the most viable equity release product.

In a home reversion plan, you sell part or all of your property to the equity release provider in exchange for a lump sum or regular payments. You get to stay in your home rent-free until you pass away or enter long-term care.

While this plan gives you a guaranteed percentage of your home’s future value to pass on (if you don’t sell 100%), the value and cash amounts that are offered upfront, compared to a lifetime mortgage, are typically a lot lower.

In short: You will lose some ownership of your home, but in return, there’s no interest to pay and a guaranteed share of the estate may be preserved for inheritance.

What Happens to Equity Release and Your Property When You Pass

For many people thinking about equity release, the most important question is: “What happens to my property when I die?”

Equity release works very differently from typical mortgages, and your loan only needs to be repaid in the event that you pass away or have to move into long-term permanent care.

As such, when you pass away (or are moved into permanent care), your equity release property will typically be sold in order to repay the loan. This process is usually handled by your estate executor(s), and any remaining equity after the repayment goes to you – to help with care – or to your beneficiaries.

Crucially, if your spouse or partner is also a named borrower on the equity release plan, the loan doesn’t need to be repaid until they also pass away or move into long-term care.

The provider usually allows six to twelve months for the property to be sold. During this time, your family can decide whether to repay the loan through other means or sell the house.

Will My House Be Sold to Repay My Equity Release?

In most cases, yes. Your property will need to be sold to repay the equity release loan, unless your estate or beneficiaries choose to repay it by other means.

“But can I sell my house if I have an equity release?” Yes, but the sale will typically be for the purpose of repaying your current equity release loan. Most importantly, If you or your beneficiary(s) want to sell the property – the full outstanding amount must be repaid.

This is where the no-negative-equity guarantee becomes essential. It ensures that your estate will never owe more than the value of your home, protecting your family from falling into debt due to market fluctuations.

Practical example:

Let’s say you took out a lifetime mortgage of £70,000, and the interest has accrued to £100,000 by the time you pass away. If your property sells for £120,000, the loan is fully repaid, and the remaining £20,000 goes to your estate.

But if the property sells for just £90,000, the no-negative-equity guarantee ensures the lender absorbs the shortfall – and your family won’t have to cover the extra £10,000. The lender cannot claim more than the value of the home.

It is important to note that no-negative-equity is a protection that is now standard among Equity Release Council members, and so it’s important to work with a trusted adviser and member of the council who only recommends approved, regulated products – like Boon Brokers.

What Is a Protected Equity Guarantee and Why Does It Matter?

A lifetime mortgage that fully meets the Equity Release Council’s product standards will include a protected equity guarantee. This feature allows you to protect a portion of your home’s value as inheritance, regardless of how much interest accrues.

This inheritance protection equity release benefit is ideal for those who want to support their children or other beneficiaries after they’re gone. While it may reduce the amount you can borrow, it gives peace of mind about your family’s future.

Equity Release and Inheritance Tax

Equity release inheritance tax planning is a critical element of estate management. Because equity release reduces the value of your estate (by reducing your home equity), it can lower your inheritance tax liability.

However, this depends on how the money is used. For example, gifting funds while still alive could result in tax implications under the seven-year rule.

It is best practice to consider Inheritance tax and equity release together. For that reason, we always recommend speaking to a qualified financial adviser or tax expert to ensure that your equity release plans align with your goals for the future.

When Is an Equity Release Loan Repaid

As we’ve outlined above, most equity release loans will be repaid on the borrowers’ death or movement into permanent care.

Repayment typically occurs when:

• When the last borrower dies
• When the last borrower enters permanent long-term care
• If the property is sold earlier (by choice or necessity)

Some lifetime mortgages will allow voluntary repayments during the term to manage the growing interest. This flexibility helps preserve more equity for your estate.

Not sure when repayment may be triggered? Schedule a free call with our dedicated advisers, we can help explain all of the intricacies of equity release and repayment plans, tailored to your specific circumstances.

What Happens When You Are Moved into Long-Term Care

If you move into long-term care, the rules of your plan determine what happens next.

Most equity release loans only become repayable if the last borrower permanently is moved into care or passes away.

This is a critical point for those using equity release to pay for care or planning ahead for care home fees.

How Will Equity Release Affect Your Partner or Spouse?

If your partner or spouse is a co-applicant on the plan, they can remain in the property until they pass away or enter care. Only then will the loan need to be repaid and the house potentially sold.

Crucially, however, if your partner or spouse are not included on the equity release plan, complications can arise.

In the scenario whereby you are moved into permanent care or have passed, and your partner or spouse is not on the plan, they may not have a legal right to remain in the home. Because of this, it’s vital to consult with an expert for clear insights into the implications of including them in the application.

This is especially relevant when considering mortgage after death scenarios. A partner left behind without joint ownership may face emotional and financial hardship.

Should Beneficiaries Speak to a Financial Adviser?

Absolutely, beneficiaries can learn a lot about the financial process and benefit from tailored advice from a trusted financial adviser – especially if they’re named in the will or expect to inherit part of the estate.

While it is down to the executor of the estate (or administrator, if no will exists) to be legally responsible for managing the estate, including repaying the equity release loan, beneficiaries can still benefit from independent financial advice, particularly if:

• They’re unclear about how the estate will be divided
• They want to understand the tax implications of inheritance
• They’re considering using other funds to repay the equity release and retain the family home

Speaking with a qualified adviser or solicitor can provide clarity during what is often a difficult and emotionally charged time – ensuring decisions are well-informed and legally sound.

Is Equity Release Right for You and Your Family’s Future?

Equity release can often be one of the best mortgage products on the market, providing a valuable financial tool for those in later life – but is it the right choice for you?

Understanding equity release and what happens to your finances when you die is an important part of deciding whether equity release could benefit you. It can affect your partner, your children, and the home you’ve worked hard to maintain.

By choosing the right product, involving your spouse or beneficiaries early, and potentially protecting part of your estate through inheritance guarantees, you can ensure that equity release supports your family’s future.

At Boon Brokers, we provide independent, fee-free advice to help you make the most informed decision possible. We’ll walk you through the key considerations, including how equity release works, the costs, and what happens when your plan comes to an end.

Contact our expert team today – we’re here to help guide you through your options and to help you plan with confidence, for now and for the future.