When people talk about equity release, they are often referring to lifetime mortgages. While this is the most common form of equity release in the UK, it is not the only option available.
There are two main types of equity release: lifetime mortgages and home reversion plans. Although both allow homeowners to access the value in their property while continuing to live there, they work in very different ways and suit different circumstances.
Understanding the difference between these two options is essential before deciding whether equity release is right for you. This article explains how lifetime mortgages and home reversion plans work, how they compare, and how to decide which option may be more suitable.
The Two Types of Equity Release Explained
Equity release in the UK falls into two broad categories:
- Lifetime mortgages
- Home reversion plans
Both are designed for homeowners aged 55 or over, but the structure, ownership, and long-term impact of each option differ significantly.
Most people who proceed with equity release choose a lifetime mortgage, but that does not mean a home reversion plan should be dismissed without consideration.
What Is a Lifetime Mortgage?
A lifetime mortgage allows you to borrow money against the value of your home while retaining full ownership of the property.
The loan is secured against your home, and interest is added to the balance over time. In most cases, there are no required monthly repayments, and the loan is repaid when the property is sold, usually after you pass away or move into long-term care.
Key features of a lifetime mortgage include:
- You remain the legal owner of your home
- Interest is charged on the loan, typically on a compound basis
- The loan is repaid from the sale of the property
- Most plans include a no negative equity guarantee
Modern lifetime mortgages are flexible and can often be tailored to individual needs, offering options such as drawdown facilities, voluntary repayments, and inheritance protection.
What Is a Home Reversion Plan?
A home reversion plan works very differently.
Instead of borrowing money, you sell part or all of your home to a provider in exchange for a tax-free lump sum or regular income. You continue to live in the property rent-free for the rest of your life, but you no longer own the share of the home you have sold.
When the property is eventually sold, the provider receives their agreed share of the sale proceeds, and the remaining value (if any) goes to your estate.
Key characteristics of a home reversion plan include:
- You sell a share of your property at a discounted rate
- There is no interest charged
- Ownership of the sold share transfers to the provider
- The percentage sold does not change over time
Home reversion plans are far less common than lifetime mortgages but can still be appropriate in certain situations.
Ownership and Control: A Key Difference
One of the most significant differences between the two options is ownership.
With a lifetime mortgage, you continue to own 100% of your property. The lender has a charge against the home, similar to a traditional mortgage, but ownership remains with you.
With a home reversion plan, you give up ownership of part or all of your home. Even though you can live there for life, the provider owns the portion you have sold.
For many homeowners, retaining full ownership feels more comfortable, which is one reason lifetime mortgages are more popular.
How Interest and Cost Compare
Cost is another major area of difference.
Lifetime mortgages charge interest, which is added to the loan over time. Because there are usually no required repayments, interest compounds, and the balance can grow significantly over many years.
Home reversion plans do not charge interest. Instead, the cost comes from selling your property at less than its full market value. The provider benefits from future house price growth on the share they own.
In simple terms:
- Lifetime mortgages can become expensive over time due to compound interest
- Home reversion plans can be expensive upfront because of the discounted sale
Which option is better value depends on how long you live in the property and how house prices change.
Flexibility Over Time
Flexibility is an area where lifetime mortgages tend to offer more options.
Many lifetime mortgages now allow:
- Voluntary repayments each year
- Drawdown rather than a single lump sum
- Inheritance protection options
- Downsizing protection if you move later
These features allow the plan to adapt as circumstances change.
Home reversion plans tend to be less flexible. Once you have sold a share of your property, that decision cannot be reversed. You cannot buy the share back, and there is usually no option to release additional funds later.
Impact on Inheritance
Both types of equity release affect inheritance, but in different ways.
With a lifetime mortgage, inheritance is reduced by the size of the loan and any accumulated interest. However, inheritance protection options and voluntary repayments can help manage this impact.
With a home reversion plan, inheritance is reduced because you have sold a portion of your home. The share sold will never form part of your estate, regardless of future property value growth.
Some homeowners prefer the certainty of knowing exactly what proportion of the property will remain for beneficiaries, which is one reason home reversion plans still appeal in specific cases.
Suitability and Typical Use Cases
Lifetime mortgages are generally more suitable for homeowners who:
- Want to retain ownership of their home
- Value flexibility and control
- May want to access additional funds later
- Prefer optional rather than fixed commitments
Home reversion plans may be considered by homeowners who:
- Want certainty over inheritance outcomes
- Are less concerned about owning the property outright
- Prefer not to deal with interest or loan growth
- Are comfortable with selling a share of their home
Suitability depends on personal priorities rather than a one-size-fits-all rule.
Regulation and Safety
Both lifetime mortgages and home reversion plans are regulated in the UK.
They are overseen by the Financial Conduct Authority and must be arranged through qualified advisers. Independent legal advice is mandatory for both types of plan.
Recognised plans include important safeguards such as:
- The right to live in your home for life
- Clear disclosure of risks and costs
- Consumer protections if circumstances change
Safety comes from regulation and suitability, not from the product type alone.
Why Lifetime Mortgages Are More Common
The vast majority of equity release plans in the UK are lifetime mortgages. This is largely due to their flexibility, familiarity, and the ability to tailor them to individual needs.
Home reversion plans remain a niche solution, used in cases where certainty and simplicity are prioritised over flexibility.
The decline in home reversion popularity does not mean they are unsuitable, only that they serve a narrower range of needs.
The Importance of Advice When Choosing
Choosing between a lifetime mortgage and a home reversion plan is not simply a financial decision. It involves lifestyle preferences, family considerations, and long-term planning.
A qualified adviser will:
- Explain both options clearly
- Compare outcomes using realistic scenarios
- Explore alternatives to equity release
- Recommend a solution only if appropriate
The goal is not to choose the most common option, but the most suitable one.
Final Thoughts
Lifetime mortgages and home reversion plans both allow homeowners to access property wealth in later life, but they do so in very different ways.
Lifetime mortgages offer flexibility, control, and continued ownership, making them the preferred choice for most people. Home reversion plans offer certainty and simplicity, which can be appealing in specific circumstances.
Understanding the difference between the two is a crucial step in making an informed decision about equity release. With the right advice, it becomes far easier to identify which option aligns with your goals, values, and long-term plans.
