Lifetime Mortgage vs Home Reversion

When people talk about equity release, they are usually picturing a lifetime mortgage, but it is not the only option. There are two distinct routes to turning property wealth into cash while carrying on living at home, and they are built on opposite foundations. One is a loan; the other is a partial sale. Understanding the difference is the key to a good decision.

This guide sets the two side by side: how each works, who keeps the upside if your home rises in value, what happens to your inheritance, and the sort of person each tends to suit. Both are regulated by the Financial Conduct Authority and both require professional advice, so think of this as the groundwork before a proper conversation with a specialist.

Two forms, opposite foundations

Equity release comes in two legal shapes. A lifetime mortgage is borrowing: the provider lends you money secured against your home, you retain ownership, and the debt is settled later. Home reversion is a sale: you sell some or all of your home to a reversion company, receive tax-free cash, and keep the right to live there for life. That single distinction, do you still own your home, or have you sold part of it?, drives every other difference between them.

It is a distinction worth pausing on, because the language can blur it. Both plans let you carry on living in your home for the rest of your life, both hand you tax-free cash, and both are regulated by the Financial Conduct Authority. From the sofa, they can look almost identical. The difference only becomes visible over time, in who owns the home, who benefits if it rises in value, and exactly what your family receives when the plan ends. Getting that difference straight in your mind is the foundation of a good decision, which is why regulated advisers spend so long on it before anything else.

How a lifetime mortgage works

With a lifetime mortgage, available from age 55, you borrow a percentage of your home’s value while keeping full ownership. You make no compulsory monthly repayments; instead the interest rolls up and compounds, and the loan plus accumulated interest is repaid when you die or move into long-term care, usually from the sale of the property. Because you still own 100% of the home, any rise in its value is yours, although the growing debt offsets some of that. Our detailed guide on whether equity release is a good idea unpacks the roll-up effect in full.

Modern lifetime mortgages that meet Equity Release Council standards carry a no-negative-equity guarantee, a rate fixed for life, and the ability to make penalty-free voluntary repayments. This flexibility, plus the fact that you keep ownership, is why lifetime mortgages account for the vast majority of plans sold today.

Because you keep the title, you also keep the responsibilities: insuring the property, maintaining it to a reasonable standard, and continuing to pay council tax and utility bills as you always have. And because you can take the money in stages through a drawdown facility, a lifetime mortgage can be shaped around a gradual need, a little now, more later, rather than forcing you to commit to one large figure at the outset. That adaptability is a big part of the appeal for people who are not sure exactly how much they will need over a retirement that might last thirty years.

How home reversion works

Home reversion is older and rarer. You sell all or an agreed percentage of your property to a reversion provider in return for a tax-free lump sum or regular income. Critically, you receive less than the market value of the share you sell, often between 20% and 60% of it, because the provider has to wait, potentially for decades, before they can realise their investment when the home is eventually sold.

In exchange you get a lifetime lease, allowing you to live in the home rent-free (or for a token rent) for the rest of your life. When you die or move into care, the property is sold and the provider takes their agreed share of the proceeds; you or your estate keep the share you retained. The appeal is certainty: if you keep 50%, you know your heirs will receive 50% of the eventual sale price, whatever happens to the debt-versus-value maths that governs a lifetime mortgage.

The reason a provider pays less than market value comes down to time and risk. They hand over cash today but may not see a penny back for twenty or thirty years, during which they earn nothing on the share they own and cannot use it. The discount is their compensation for that long, uncertain wait. It also means home reversion tends to make more sense the older you are: at 65 the provider expects a very long wait and offers little, whereas at 85 the discount narrows considerably. This is one reason most reversion providers set a minimum age well above the 55 used for lifetime mortgages.

Side by side

The trade-offs

The headline trade-off is this: home reversion removes the uncertainty of compounding interest but does so by selling part of your home cheaply, whereas a lifetime mortgage keeps you as full owner but exposes you to a debt that grows over time. Neither is universally better: it depends on your age, your attitude to leaving an inheritance, and how long you expect to remain in the home.

Which suits whom

Broadly, a lifetime mortgage suits the majority: those who want to keep full ownership, retain any house-price growth, and value the flexibility of drawing money in stages or making voluntary repayments. Home reversion tends to appeal to older homeowners who want absolute certainty about the fixed percentage of their home their family will inherit, and who are comfortable selling a share below its market value to achieve that. For anyone weighing what they will leave behind, it is worth reading this alongside our guidance on reducing inheritance tax legally.

A worked contrast helps. Imagine two neighbours, both 75, each with a £300,000 home. One takes a lifetime mortgage and releases £90,000; over the years the debt rolls up, and how much passes to her family depends on how her home’s value races against that growing balance. The other sells a 40% share through home reversion for a discounted lump sum; whatever happens to house prices, her family is guaranteed the remaining 60% of the eventual sale price. Neither is richer or poorer in the abstract: they have simply chosen certainty over flexibility, or the reverse. That is the real decision beneath the jargon.

Costs and changing your mind

Both plans carry set-up costs, advice fees, legal fees and a valuation, usually totalling a few thousand pounds, and both require you to instruct your own solicitor. The difference lies in what happens if you later want out. With a lifetime mortgage you can, in principle, repay the loan and be free of it, although an early-repayment charge may apply depending on the terms and how long you have held it. With home reversion, unwinding the arrangement is far harder: you have sold a share of your home, and buying it back, if the provider will even agree, means paying its current market value, not the discounted price you received. In practice, reversion is close to permanent.

This asymmetry is one of the strongest reasons lifetime mortgages have come to dominate. A loan you can, with care, exit; a sale you generally cannot. It is also why advisers stress-test your plans so thoroughly before recommending reversion, because the decision has so little room for second thoughts. If protecting a specific slice of your estate is not your overriding priority, the flexibility of a lifetime mortgage usually wins out, which is worth bearing in mind as part of your wider approach to managing your wealth.

Getting advice

Both forms of equity release are regulated, and you must take professional advice and use a solicitor before proceeding. An adviser will compare the two approaches for your circumstances, run the numbers, and check whether a simpler or cheaper alternative would serve you better. Because this is a specialist field, it helps to work with someone who does it regularly, see whether a financial adviser is worth it for how to think about the value.

Vetted Wealth matches you, at no cost, with an independently vetted, FCA-regulated adviser who specialises in later-life lending, wherever you are in Devon, Cornwall or the wider UK. This is information, not personal advice; equity release reduces the value of your estate and may affect your entitlement to means-tested benefits, and property values can fall as well as rise.

Common questions on equity release