By Clare Yates
5 min read
In this guide, we’ll walk you through how equity release works, how it may impact different types of benefits, and the steps you can take to make an informed decision.
Please note however - this is an article for information purposes only, based on our understanding of benefit rules at the time of writing. Please always check how current benefit eligibility rules affect you before taking out an equity release plan.
How equity release works
Equity release allows homeowners aged 55 or over to access some of the value tied up in their property, without needing to sell it or move out. The most popular type is a lifetime mortgage: a loan secured against your home.
You can take your money in one go with a lump sum lifetime mortgage, or in stages with a drawdown lifetime mortgage. Interest is added to the loan over time, and everything is usually repaid from the sale of the home when you pass away or move into long-term care.
In the meantime, you don’t have to make any payments of the loan or interest – although you can make regular payments to reduce how much interest builds up.
Could equity release affect my benefits?
As you may expect, suddenly having a large sum of cash can affect your entitlement to benefits. It depends on which benefits you receive, how much money you release, and how you manage those funds.
Non-means-tested benefits
These benefits are not affected by your income or savings. If you receive any of the following, equity release won’t normally change your entitlement:
State Pension
Carer’s Allowance
Personal Independence Payment (PIP)
Attendance Allowance
Disability Living Allowance
New Style Employment and Support Allowance (ESA)
Bereavement Support Payment
Means-tested benefits
Your entitlement to these benefits is influenced by how much income or savings you have. Releasing a lump sum that pushes you over certain thresholds may mean you’re no longer eligible, or that you receive a reduced amount. A drawdown lifetime mortgage could help manage this by releasing money in stages, rather than as a single lump sum that might push you over the threshold.
Common means-tested benefits include:
Universal Credit
Pension Credit
Housing Benefit
Council Tax Reduction
Local authority funding for care
Now let’s break down how equity release might affect some of the most commonly claimed means-tested benefits.
Universal Credit
If your total savings exceed £16,000, you won’t qualify for Universal Credit. So, if you take a large lump sum from your home through equity release and keep it as savings rather than spend it, this could disqualify you from claiming.
However, if you only release a smaller amount (many plans let you release a minimum of £10,000), your eligibility for Universal Credit may remain unchanged.
Pension Credit
This benefit helps top up the income of retirees on a low income. It’s means-tested, and your savings are taken into account.
If your total savings and investments are:
£10,000 or less: No impact on Pension Credit.
Over £10,000: Every £500 over that threshold is treated as £1 of weekly income.
For example, £15,000 in savings would be treated as an extra £10 per week. This could reduce your entitlement, or make you ineligible altogether.
Council Tax Reduction
Council Tax Reduction (also called Council Tax Support) is managed by local authorities, but most schemes follow similar rules, which include a savings threshold of £16,000.
Taking equity release won’t automatically disqualify you, but if the cash you release increases your savings above the threshold, your support could be reduced or withdrawn.
You can check your local scheme via your council’s website or at www.gov.uk/apply-council-tax-reduction
Local authority funding for care
If you're assessed for support with care costs (either in your home or in a care facility), your savings will be part of the financial means test.
If the money released from your home pushes you above the savings threshold, you could find that you have to contribute more toward the cost of your care, or fund it entirely yourself. The threshold differs across different parts of the UK, so please check with relevant agencies if this is relevant to you.
On the flip side, some people use equity release to pay for care privately, or to make home improvements (like installing a wet room) so they can live independently for longer and avoid or delay the need for residential care.
How to check on the impact of equity release on your benefits
If you currently receive benefits, or think that you may be eligible in the future, it is important that you check how these might be affected when considering equity release.
It’s reassuring to know that this is one of the matters that will be looked at as part of the service provided by Compare More's selected equity release advisers. You can also ask independent services such as Citizens Advice for help, as well as the relevant agencies or government departments.