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Downsizing or equity release? Making the right decision for you

8 minutes

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Whether you’re looking to boost your retirement income or support your family, downsizing or equity release might be right for you.

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Accessing the equity in your property can provide extra money to pay for things in your retirement. However, unlocking this equity requires you to consider downsizing or equity release options like lifetime mortgages.

This guide will explain the practical and financial implications of downsizing and equity release.

The information on this page should not be considered as financial advice. You have to take financial and independent legal advice before you can apply for an Equity Release Lifetime Mortgage.

Is downsizing or equity release right for me?

If you’re looking to access the money tied up in your property as you head into retirement, downsizing or equity release could be a couple of options. Equity release can unlock tax-free cash from the value of your home by using products such as lifetime mortgages. Downsizing, on the other hand, involves selling your home to pay for a cheaper property and banking the profit. It’s also popular amongst borrowers who’ve struggled with increases to their mortgage costs over the last few years.

Whether you’re planning your retirement, looking at ways to replace lost income, or want to help others financially, you may want to consider downsizing or equity release as part of your future plans.

What is equity release?

If you’re aged 55 and over and a UK homeowner, you could unlock money tied up in your property in the form of tax-free cash, known as equity release.

Equity release describes a group of products including lifetime mortgages and home reversion plans that are secured against your property. It’s a loan that’s repaid using the value of your property when you pass away or need long-term care.

It’s also growing in popularity – lending rose from £2.3bn in 2024 to £2.57bn last year according to The Equity Release Council’s Q4 2025 lending data.

Depending on the specific product, you can choose to receive equity release as a lump sum or a series of smaller payments that would give you a regular income.

Taking out equity release will, however, reduce the amount of inheritance you’ll leave for your chosen beneficiaries when you pass away. Therefore, it’s important to consider the benefits and potential drawbacks of equity release before deciding.

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What are the benefits and drawbacks of equity release?

There are a wide variety of possible pros and cons to consider with equity release:

Benefits

Drawbacks

  • Remain in the same house

Equity release allows you to stay in your home while you access the equity tied up in your property. If you’re reluctant to move, equity release could be a practical option. You could also use some of the money for home improvements.

  • Reduced inheritance

Your equity release provider is repaid when your home is sold, so you can’t pass on the full value of the property to others as an inheritance. Even releasing a small amount of the equity tied into your home will reduce the overall value of your estate.

  • Tax free money

The money you receive is exempt from income tax and can be spent however you like. You’ll have to use the money released from your property’s value to pay off any remaining mortgage you may have, and the rest is yours.

  • Interest charges

The debt on a lifetime mortgage increases through compound interest, where the interest is calculated based on the value of the loan plus interest accrued. Therefore, the longer you have the loan, the more you’ll have to pay when the property is sold. As you don’t have to make regular repayments, the amount owed can increase quickly over time.

  • Flexibility with income

Some types of equity release offer flexibility that matches your personal circumstances. For instance, a lifetime mortgage can provide a one-off lump sum to fund a specific expense, such as university fees or essential home repairs. Alternatively, lifetime mortgage drawdown allows you to access your money over time and when you need it rather than all in one go.

  • Restrictions on equity access

The amount you can access through equity release depends on many factors such as the value of your home, your age, and your current mortgage status.

  • Retain ownership of your home

With a lifetime mortgage, you’ll still own 100% of your home. Some products even allow you to move property after taking out equity release.

  • Fees and upfront costs

Like most financial products, equity release typically involves arrangement fees payable to the mortgage provider. From financial advice and legal fees to administration costs and property valuations, these costs can mount up in line with the amount of equity released and the type of plan you take out. You may be able to add the fees to the loan if you can’t afford them upfront.

  • Make repayments

Some equity release options allow you to pay off the capital and/or interest in regular instalments. This will reduce the amount you owe over the term of the loan.

  • Early repayment charges

Repaying your loan early can be costly depending on your lender and product so it’s worth checking your terms carefully before committing.

  • No negative equity

Equity release products that comply with Equity Release Council (ERC) regulations come with a no negative equity guarantee. This means you’ll not pay back more than the value of your property when it is sold.

  • Moving existing lifetime mortgage may have limitations

If you decide to move home after taking out a lifetime mortgage, you may face restrictions or extra costs. Even if your plan is portable, the lender will need to approve your new home, and you may need to repay part of your existing lifetime mortgage, particularly if you are downsizing.

 

Need help with equity release?

Releasing equity from your home isn’t an easy decision. For a free and impartial chat, speak to one of our friendly advisers.
You can also order a free Equity Release brochure.

Request a callback Try our equity release calculator

What are the benefits and drawbacks of downsizing?

Downsizing involves selling your home to buy a cheaper property, perhaps with fewer bedrooms or in a new location where prices are lower. You’ll keep the money you get from the sale of the property however moving house can be expensive. Here are the benefits and drawbacks of downsizing your property:

Benefits

Drawbacks

  • Simple process

Selling your home to downsize or move to a cheaper property can be a relatively simple financial process. You sell your property to purchase a cheaper one and keep the remaining cash to fund your retirement, give to others, or spend however you like.

  • Relocation costs

From estate agent fees and legal fees, to removal costs and possible stamp duty (which has risen for many buyers from 1 April 2025), the price of moving property can mount up when all expenses are factored in.

  • 100% property ownership

The new property you buy will be 100% yours and mortgage free. So, if you pass away, it can be left to your chosen beneficiaries as an inheritance.

  • Renovation work

Even when downsizing you may need to pay for significant renovation costs to make your new home the way you want it to be, or more suitable for elderly or limited mobility living.

  • Greater efficiency

A smaller or more modern property could deliver greater efficiencies over your current home. Lower energy bills along with reduced maintenance costs could make a new home cheaper to run.

  • The emotional factor

If you’ve lived in your home for many years, it is likely to hold special memories for you and your family. Leaving all this behind to downsize to a new property may seem like too much of an emotional and practical upheaval in later life. Not only that, but it may mean leaving friends you’ve made behind.

  • Future planning

If you’re approaching your latter years and face mobility challenges, you may decide to sell your property to buy a practical home such as an apartment or bungalow.

  • Reduced inheritance

Switching a larger property for a smaller, lower value home may mean less overall estate value for your family and loved ones and a smaller overall inheritance.

  • A fresh start in life

If you’ve retired from work and are looking to move closer to family, downsizing could be an attractive option. Not only will you be nearer to your loved ones, but you can use any profits from the sale of your home to enjoy your retirement.

  • Compromise on less space

Downsizing often means giving up actual space, meaning less storage and rooms for visiting family members, and limiting lifestyle elements such as hobbies or interests.

 

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Should I downsize or choose equity release?

Both downsizing and equity release are major financial commitments and it’s important that you understand what they mean for you and your family.

Downsizing is a debt-free method of accessing your money, although it will mean moving away from your current home. Equity release allows you to stay in your current home, but it will have an impact on any inheritance you plan to leave to your loved ones and chosen beneficiaries.

For the majority of homeowners, property is their greatest asset. Therefore, it’s not surprising that many people use some of the money tied up in it to fund their retirement.

While there is no one-size-fits-all solution to choosing downsizing or equity release, the best option often depends on many factors such as your age, health, and personal circumstances. It’s also important to make sure you’ve discussed your intentions with your family, and where you’re considering equity release, you’ve taken both financial and independent legal advice.

How LV= can help with your retirement planning

Before you proceed with equity release, it is recommended that you speak to a qualified adviser, weigh up the costs and risks, and explore the options available to you. LV= is a member of the Equity Release Council, a regulatory body that sets standards for equity release providers and provides a guarantee that your estate will never owe more than the property is worth when it’s sold.

You can also use our equity release calculator to quickly find out how much tax-free cash you could unlock from the value of your home.