Last updated: August 2026. This guide covers England unless stated otherwise. Equity release products and their features change, so always confirm current terms directly with an FCA-authorised adviser.
Equity release is a way of accessing money tied up in your home — most commonly through a lifetime mortgage — without selling up and moving out. For families weighing up how to pay for care, it can look like an obvious solution: the house stays in the family, and cash becomes available straight away.
There's an important nuance families often miss early on. Equity release generally requires the property to remain someone's main residence, so it is rarely the right tool for the person who has themselves moved permanently into a care home. It is far more commonly used when one partner moves into care and the other stays living in the family home.
This guide explains how equity release actually works, when it genuinely helps with care costs, and the risks that deserve equal weight to the benefits before anyone signs anything.
What equity release actually is
Equity release covers two distinct products, and the difference matters.
A lifetime mortgage is a loan secured against your home. You (or your adviser) choose how much to borrow against the property's value. There are no monthly repayments required — interest is added to the loan and compounds over time — and the loan plus accumulated interest is repaid when the last borrower dies or moves into long-term care permanently, at which point the property is usually sold.
A home reversion plan works differently: you sell all or part of your property to a provider in exchange for a lump sum or regular income, while retaining a legal right to live there rent-free for the rest of your life. Reversion plans are far less common in the UK market than lifetime mortgages, and once you sell a share of the property, you no longer own that share outright.
Both products share one condition that shapes how they're actually used: the property must remain the applicant's, or their partner's, main residence. That's why equity release is rarely used to fund fees for someone who has already moved permanently into a care home — a lender generally cannot lend against a property where nobody eligible under the plan still lives. It's far more commonly used when one partner moves into care and the other remains in the family home.
For an independent, government-backed explanation of how both product types work, see MoneyHelper's guide to using equity release to fund care.
When equity release is used to help fund care
In practice, equity release for care costs tends to show up in two situations.
The first, and most common, is when a spouse or partner moves into a care home while the other remains living in the family home. The remaining partner can release cash from the home's value to help cover care fees, without having to move out or sell. This is often the scenario people mean when they search for "equity release for care home fees" — it funds someone else's care, not their own residential stay.
The second is when the person who needs care is still living at home and wants to fund home care or adaptations — a stairlift, a wet room, or paid carers coming in — rather than a permanent care home move. Because the property stays their residence throughout, equity release fits this situation more naturally.
Equity release is not a substitute for the council-run route. A council deferred payment agreement only becomes relevant once someone has moved permanently into a care home and their former home stands empty — the council arranges it, and it's secured against that specific property once nobody eligible lives there. Equity release and deferred payment agreements solve different problems for different households, and confusing the two leads to wasted time chasing the wrong product.
The real costs and risks
This is the part that deserves the most attention, and it should carry equal weight to the benefits — not a footnote after the sales pitch.
Compound interest. On a lifetime mortgage, unpaid interest is added to the loan balance, and future interest is then charged on that larger balance too. Over a long period, this compounding effect can make the amount eventually owed substantially larger than the sum originally borrowed. As a purely illustrative example, not a current rate or a quote for any specific plan: a loan that compounds at a fixed rate with no repayments made can roughly double in size over about fifteen years, simply because each year's interest is calculated on a balance that already includes the previous years' interest. Actual figures depend entirely on the rate and term of the plan you're offered.
Reduced inheritance. Releasing equity reduces what's left in the estate once the loan (plus accumulated interest) is repaid from the property's value. For many families, this is as much an emotional consideration as a financial one — it can mean less to pass on to children or grandchildren than originally planned.
Impact on means-tested benefits. This is a point families often miss until it's too late. A lump sum released through equity release counts as capital, and holding it can affect entitlement to means-tested support such as Pension Credit or council tax reduction. Anyone receiving or expecting to claim these should check the impact before releasing funds, not after.
Early repayment charges. Paying off a lifetime mortgage earlier than planned — for example, if the remaining partner later needs to sell the home to move into care themselves — can trigger significant early repayment charges. Ask specifically about these charges and the circumstances that trigger them before signing.
The no-negative-equity guarantee. On the safeguard side: plans that meet the standards set by the Equity Release Council include a guarantee that your estate will never owe more than the property is worth when it's eventually sold, even if the debt has grown larger than the sale proceeds. This is a genuine and important protection — but it's a safety net for a worst-case scenario, not a reason to skip careful due diligence on the rest of the plan.
The no-negative-equity guarantee protects against owing more than the house is worth. It does not protect against compounding interest quietly reducing what's left for the family.
Questions to ask before taking out equity release for care costs
Work through these before signing anything:
- Is the provider and product regulated by the Financial Conduct Authority (FCA) and a member of the Equity Release Council?
- Have you received independent financial advice? This is a regulatory requirement for equity release, not an optional extra.
- How would releasing this equity affect entitlement to Pension Credit, council tax reduction, or other means-tested support?
- What happens to the plan if the remaining partner later also needs to move into a care home?
- What are the early repayment charges, and under exactly what circumstances would they apply?
- Has a solicitor reviewed the plan, and does it include the no-negative-equity guarantee?
Equity release vs the alternatives
Equity release is one option among several, and it isn't automatically the right one.
Versus selling the house outright. Equity release avoids a full sale and the emotional cost of a remaining partner leaving the family home. The trade-off is ongoing interest costs and reduced inheritance, against a one-off, cleaner transaction that removes the property question entirely.
Versus a council deferred payment agreement. A deferred payment agreement is only available once the property is empty — the resident has moved permanently into care — and is arranged through the council against that specific property. Equity release is arranged privately with a regulated lender and can apply while a partner still lives in the home. If you're weighing up whether to sell instead, our guide on selling the family home to pay for care covers that route in more detail, including how the care home means test works if the property might count towards the assessment.
Versus using savings or benefits first. For many families, equity release makes more sense as a later step, once other funding routes — including Attendance Allowance and the full range of other care home funding options — have been explored. That's a sensible planning order to consider, not a rule that applies to everyone.
Whichever funding route a family is weighing up, RightCareHome helps you compare care homes on independent CQC, financial stability, and cost data — so the decision about where isn't made separately from the decision about how it's paid for.
Frequently Asked Questions
Can I use equity release to pay care home fees for myself if I've already moved into a care home?
Generally, no. Equity release products require the property to remain someone's main residence, so once the last resident has moved permanently into care, a deferred payment agreement or a sale becomes the more relevant route rather than equity release.
Does equity release affect means-tested benefits?
Yes, potentially. Released cash counts as capital and can affect entitlement to Pension Credit, council tax reduction, and other means-tested support. Check this before proceeding, not after the funds have been released.
Is independent advice required before taking out equity release?
Yes. Regulated advice from an FCA-authorised adviser is a requirement, not just good practice, and should cover the impact on benefits, inheritance, and the alternatives available to your situation.
What is the no-negative-equity guarantee?
It's a standard included in plans provided by Equity Release Council members, guaranteeing that the amount owed will never exceed the property's value when it's eventually sold — so the estate won't be left with a debt beyond what the property is worth.
Is equity release the same as a deferred payment agreement with the council?
No. They're different products for different situations. A deferred payment agreement is arranged with the local council once a property is empty because the resident has moved permanently into care. Equity release is a private financial product that can be used while someone still lives in the property.