Equity Release and Care Fees: What Families Need to Know

Topic cluster: Benefits & Financial Support | Reading time: 6 min

For many older homeowners, the majority of their wealth is tied up in their property. When care costs arise, families often look at equity release as a way to fund care at home — or to delay the sale of the property while care is arranged. This guide explains how equity release works in the context of care funding, the different products available, and the significant risks to understand before proceeding.

What Is Equity Release?

Equity release allows homeowners aged 55 and over to access a portion of the value of their home without selling it or moving out. The money can be taken as a lump sum or in smaller drawdowns. The loan is typically repaid from the sale of the property when the homeowner dies or moves permanently into long-term care.

There are two main types:

Lifetime Mortgage: The most common type. You borrow against your home's value. Interest rolls up (compounds) over time. You continue to own your home. The loan plus rolled-up interest is repaid on death or move to care.

Home Reversion Plan: You sell a share (or all) of your home to a reversion company in exchange for a lump sum or regular income. You retain the right to live there rent-free for life. Less common than lifetime mortgages.

How Equity Release Is Used for Care

Equity release is typically used in care planning in two ways:

Funding home care — releasing cash to pay for care workers, home adaptations, or assistive technology to allow your parent to continue living at home
Bridging before a property sale — accessing funds quickly to pay care home fees while the property is being sold (an alternative to a Deferred Payment Agreement)

Use Case	How Equity Release Helps
Home care costs	Monthly drawdowns to fund ongoing care
Home adaptations	Lump sum for adaptations (wet room, stair lift, ramp)
Bridge before sale	Lump sum to fund initial care home fees
Supplement other income	Drawdowns to top up pension income for care costs

The Role of the Equity Release Council

The Equity Release Council (ERC) is the trade body for the equity release industry. Products from ERC members must include:

A no negative equity guarantee — you will never owe more than your home is worth
The right to remain in your home for life
The right to make voluntary partial repayments (on most products)
Fixed or capped interest rates

Always look for products from ERC-registered providers.

Key Risks to Understand

Equity release can be an appropriate solution in the right circumstances — but it carries significant risks that families must understand.

Compounding interest: On a lifetime mortgage, interest compounds annually. At 5% interest, a £50,000 loan grows to approximately £130,000 after 20 years. The longer the loan runs, the larger the amount repaid.

Impact on means-tested benefits: Releasing equity from a property may affect eligibility for means-tested benefits — particularly Pension Credit. Money released from a property counts as savings for benefit assessment purposes.

Care home means test: If a parent moves to a care home and equity release funds are in a bank account, those funds count as savings in the local authority's means test. This may reduce or eliminate council funding contribution.

The 12-week property disregard: When a person first enters a care home, the local authority disregards the property value for 12 weeks — making a Deferred Payment Agreement (where the council loans money secured on the property) an alternative to equity release in this period. Always consider both options.

Inheritance: Compounding interest significantly erodes the inheritance left to family. If preserving inheritance is a priority, equity release may not be appropriate.

Equity Release vs. Deferred Payment Agreement

Feature	Equity Release	Deferred Payment Agreement
Who provides it	Private lender	Local council
Interest	Rolled up (typically higher)	Lower (set by government)
Access	Immediate, flexible	Tied to care home entry
For whom	Homeowners wanting to stay at home or bridge	Those entering council-funded care
No negative equity guarantee	Yes (ERC products)	Not applicable
Repaid	On death or sale	On death, property sale, or move

Getting Independent Advice

Equity release is a significant financial commitment and must not be entered into without independent financial advice from an adviser qualified in equity release (holding the CF7 or ER1 qualification, or membership of the Society of Later Life Advisers (SOLLA)).

The adviser must:

Explore all alternatives before recommending equity release
Explain the impact on benefit entitlement
Discuss the impact on inheritance
Ensure the product has ERC backing

Reputable providers will not proceed without this advice.

Checklist before proceeding:

☐ I have taken independent financial advice from a SOLLA or ERC-registered adviser
☐ I have considered the Deferred Payment Agreement alternative
☐ I understand how compounding interest affects the total repaid
☐ I have checked the impact on means-tested benefits
☐ I have discussed the inheritance implications with family members
☐ The product is from an ERC member

Navigating care funding options? homeformum.com helps families understand all their options — from equity release and DPAs to council funding and NHS care — so you can make an informed decision.