Who repays equity release when the plan ends?

A lifetime mortgage is secured against the property rather than being an unsecured personal debt passed directly to your children. The plan normally ends when the last borrower dies or moves permanently into long-term care. At that point, the lender expects the outstanding balance to be repaid, usually from the sale of the home.

Your executors or attorneys will normally contact the lender and arrange repayment. The estate often has a defined period in which to market and sell the property, although the exact timescale and any extensions depend on the lender and the circumstances.

If your beneficiaries want to keep the home, they may be able to repay the balance using savings, an inheritance, a new mortgage or other funds. They are not normally obliged to do this; selling the property is the usual route.

Does the debt become my children's responsibility?

Normally, no. The lender's claim is against the property and the estate. Your children do not usually have to make payments from their own income or savings simply because they are beneficiaries or executors.

The estate must deal with the secured debt before distributing the remaining assets. If the home sells for more than the total amount owed and the costs of sale, the remaining equity becomes part of the estate. If the sale proceeds are lower than the mortgage balance, the no negative equity guarantee should limit the amount repayable to the net sale proceeds, subject to the plan conditions.

How does the no negative equity guarantee work?

Products meeting Equity Release Council standards must include a no negative equity guarantee. After the property is sold and reasonable sale costs are taken into account, neither the borrower nor the estate should have to repay more than the property is worth.

The guarantee is particularly important where interest has accumulated for a long time or property values have fallen. It is not a promise that the lender will absorb ordinary shortfalls caused by deliberate breaches, fraud or an inappropriate sale. The property normally needs to be sold properly at a fair market price and the plan conditions must have been observed.

How much inheritance could be left?

That depends on the amount borrowed, the interest rate, how long the plan runs, future house prices, any further withdrawals and whether repayments are made.

A smaller initial release, drawdown arrangement or voluntary repayments may help preserve more equity. Some products also offer an inheritance-protection feature that ring-fences a percentage of the home's future sale value. Reserving a share for beneficiaries will normally reduce the amount available to borrow.

No adviser can promise a specific inheritance because the eventual sale value and duration of the plan are unknown.

Can my family keep the property?

Potentially, yes. Once the plan becomes repayable, beneficiaries can ask the lender for a redemption statement showing the amount due. They may then choose to repay it from other estate assets, their own funds or replacement borrowing.

This needs to happen within the lender's repayment timescale. Keeping the property may not be realistic if beneficiaries cannot raise enough money, so families should avoid assuming that the home can automatically be retained.