INHERITANCE & EQUITY RELEASE GUIDE
What Happens If You Inherit a House With Equity Release?
If you inherit a property with a lifetime mortgage, the loan normally has to be repaid before the home can pass to you free of the lender’s charge.
In many cases, the property is sold and the mortgage is cleared from the proceeds. But selling is not always the only option if the family can repay the debt another way.
Written by Graham Clelland, Managing Director of My Later Life
Inheriting a House With Equity Release in One Minute
- The equity release provider should be told about the death.
- The executor will normally request a current redemption figure.
- The outstanding lifetime mortgage usually needs to be repaid.
- The house can often be sold to clear the debt.
- You may potentially keep the home if the mortgage can be repaid another way.
- Interest will usually continue to accrue until repayment.
- You do not normally become personally liable for the debt simply because you inherit.
- On a joint lifetime mortgage, the plan will normally continue for the surviving borrower.
- Plans meeting Equity Release Council standards include a No Negative Equity Guarantee, subject to its conditions.
What Does It Mean to Inherit a House With Equity Release?
Most equity release in the UK is arranged through a lifetime mortgage.
A lifetime mortgage is secured against the homeowner’s property. The homeowner continues to own the home, but the lender has a legal charge over it.
On a standard roll-up plan, the borrower does not normally have to make compulsory monthly repayments. Instead, interest can be added to the balance and may compound over time.
The amount due at the end of the plan may include:
Original amount borrowed + further drawdowns + interest + any applicable charges or fees.
The Equity Release Council explains that the provider will normally have first charge over the property, so the secured debt needs to be dealt with before the property can pass to beneficiaries free of that charge.
Read the Equity Release Council guidance on the impact on family and beneficiaries.
Do I Automatically Inherit the House?
Not necessarily in the sense of receiving the property immediately and mortgage-free.
You may be named as the beneficiary of the home in a Will, but the secured lifetime mortgage still has to be dealt with.
In practice, the executor or administrator usually needs to establish:
- Who legally owns the property.
- Whether there is a valid Will.
- Who the executor or administrator is.
- The current lifetime mortgage balance.
- The lender’s repayment requirements.
- Whether the beneficiaries want to sell or keep the home.
Who Is Responsible for Repaying the Equity Release?
Usually, the deceased homeowner’s estate.
The beneficiary does not normally become personally responsible for the lifetime mortgage simply because they inherit the property.
The executor or administrator will generally deal with the lender on behalf of the estate.
The estate normally does this
- Notifies the provider
- Supplies the death certificate
- Requests a redemption figure
- Arranges sale or alternative repayment
The beneficiary does not normally
- Automatically inherit the mortgage personally
- Simply take over the existing lifetime mortgage
- Receive the property free of the lender’s charge before repayment
What Should I Do First?
- Find the lifetime mortgage paperwork. Look for statements, offer documents, solicitor letters and drawdown records.
- Tell the equity release provider. They will explain what evidence they need.
- Request a redemption statement. This shows how much is currently owed.
- Check whether the plan was joint or sole name. This can completely change what happens next.
- Establish whether the family wants to sell or keep the property.
Joint Lifetime Mortgage vs Sole-Name Lifetime Mortgage
Joint lifetime mortgage
If one borrower dies, the mortgage will normally continue for the surviving borrower.
The surviving borrower can usually remain in the home, subject to the terms of the plan.
The mortgage is generally not repaid just because the first borrower dies.
Sole-name lifetime mortgage
If the sole borrower dies, the lifetime mortgage will normally become repayable.
The estate then needs to deal with the outstanding balance.
Someone living in the property but not named on the mortgage should not assume they can remain indefinitely.
Does the House Have to Be Sold?
No, not always.
Selling the property is often the simplest way to repay the lifetime mortgage, but there can be other possibilities.
The lender’s charge must ultimately be cleared before the property can pass to you free from the existing lifetime mortgage.
Can I Keep an Inherited House With Equity Release?
Potentially, yes.
Example
Property value: £400,000
Lifetime mortgage balance: £125,000
If the estate or beneficiary can raise enough money to repay the £125,000, the property may potentially be retained rather than sold.
Funding might come from savings, investments, another inheritance, a conventional mortgage or another suitable form of borrowing.
You should not assume that the existing lifetime mortgage can simply be transferred into your name.
How Long Do You Have to Repay Equity Release After Death?
The exact timescale depends on the provider and the mortgage terms.
Many providers allow the estate time to arrange repayment, particularly where the property needs to be sold, but executors should not rely on a generic internet deadline.
The executor should ask the lender:
- What is the repayment deadline?
- What happens if probate is delayed?
- Can an extension be requested?
- What evidence is needed?
- Does the property need to be actively marketed?
Does Interest Keep Building After Death?
Usually, yes, until the mortgage is repaid.
The borrower’s death does not normally freeze the balance immediately.
Interest may continue to accrue while probate is being obtained, the property is prepared for sale, a buyer is found and the transaction completes.
This does not mean an executor should accept a poor offer just to sell quickly, but unnecessary delay can reduce the amount eventually left in the estate.
What Happens During Probate?
Equity release adds a secured lender to the estate administration process.
What Happens if the Equity Release Is More Than the House Is Worth?
If the lifetime mortgage meets Equity Release Council standards, a No Negative Equity Guarantee is intended to ensure that, subject to its conditions being met, the estate should not have to repay more than the qualifying net sale proceeds of the property.
Example:
Property value: £240,000
Lifetime mortgage balance: £270,000
Where the guarantee applies correctly, the family should not normally have to make up the £30,000 difference from their own money merely because the mortgage balance exceeded the qualifying property sale proceeds.
The actual plan terms and guarantee conditions should always be checked.
ILLUSTRATIVE EXAMPLE
Selling an Inherited Property With Equity Release
David dies aged 84. His home is worth approximately £500,000.
His lifetime mortgage originally started at £90,000. After years of rolled-up interest and some additional drawdown, the redemption statement shows £165,000 outstanding.
David’s daughter Sarah is the executor and sole beneficiary.
| House sale | £490,000 |
| Lifetime mortgage repaid | £165,000 |
| Illustrative selling/legal costs | £12,000 |
| Approximate amount left before other liabilities/tax | £313,000 |
Sarah has not personally paid the £165,000 lifetime mortgage. The estate has repaid it from the sale proceeds.
This example is illustrative and does not describe an identifiable My Later Life customer.
ILLUSTRATIVE EXAMPLE
Keeping the Inherited Property
Margaret leaves her house to her two sons.
Property value: £375,000
Lifetime mortgage: £80,000
One son wants to keep the property as his home. The brothers agree that he will arrange enough funding to repay the £80,000 lifetime mortgage and deal with his brother’s share of the inheritance.
Once the lender’s charge is cleared and the estate administration is completed, the property may be transferred in accordance with the legal arrangements.
What if Several People Inherit the House?
If several beneficiaries inherit the property, the lifetime mortgage still needs to be repaid regardless of whether everyone agrees on what should happen to the home.
- The property may be sold.
- One beneficiary may buy out the others.
- Another source of funds may clear the mortgage.
- Legal advice may be needed if beneficiaries disagree.
What if One Beneficiary Already Lives in the House?
Living in the property does not automatically mean that person has the right to remain after the borrower dies.
Where an adult occupier was not named on the lifetime mortgage, the lender may have required them to sign documentation confirming that they would leave when the borrower dies or permanently moves into long-term care.
If this applies to your family, find the original legal paperwork and seek advice early.
What Happens if There Is No Will?
If someone dies without a valid Will, the estate is dealt with under the intestacy rules.
The lifetime mortgage is still a secured debt and still needs to be repaid before the remaining estate can be distributed.
Does Equity Release Affect Inheritance Tax?
It can affect the value of the estate, but equity release should not automatically be treated as an inheritance-tax strategy.
A lifetime mortgage is a debt of the estate. The overall tax position can depend on the nil-rate band, residence nil-rate band, spouse or civil partner transfers, previous gifts, trusts and other assets and debts.
If tax could be material, professional legal or tax advice is sensible.
What if the House Takes a Long Time to Sell?
Contact the lender rather than allowing a repayment deadline to pass without explanation.
The lender may want evidence that the estate is actively progressing the sale, such as estate-agent details, asking price, viewings, offers and probate progress.
What About Early Repayment Charges, Drawdown and Voluntary Repayments?
Early repayment charges
Repayment following death is different from voluntary early repayment during the borrower’s lifetime. The lender’s redemption statement should show what is actually due.
Drawdown plans
Only amounts actually drawn normally form part of the outstanding borrowing. An unused reserve does not automatically become debt.
Voluntary repayments
Repayments made during the homeowner’s lifetime may have reduced the balance or slowed the effect of compound interest.
What if the Plan Included Inheritance Protection?
Some lifetime mortgages include an inheritance-protection feature. This may allow a homeowner to ring-fence a percentage of the property’s future value for beneficiaries, subject to the product terms.
If the deceased selected this feature, the executor should tell the lender and confirm exactly how it applies.
“Inheriting a home with equity release doesn’t usually mean inheriting the debt yourself. The important thing is to understand what is owed, speak to the lender early and then decide whether selling or keeping the property is the right option for the family.”— Graham Clelland, Managing Director, My Later Life
Can the Family Be Left With Nothing From the House?
Potentially, yes.
The lifetime mortgage and accumulated interest reduce the equity left in the property.
However, the homeowner may have used the money to repay debt, improve the home, fund care, support family or improve retirement income and lifestyle.
What Should Executors Avoid Doing?
EXECUTOR CHECKLIST
14 Things to Check
- Locate the lifetime mortgage paperwork.
- Confirm whether the plan was sole or joint.
- Notify the lender.
- Obtain a redemption statement.
- Check whether the plan meets Equity Release Council standards.
- Confirm whether a No Negative Equity Guarantee applies.
- Check whether inheritance protection was selected.
- Establish the property’s realistic market value.
- Ask the beneficiaries whether they want to sell or keep it.
- Ask the lender about its repayment timetable.
- Keep evidence of probate and sale progress.
- Take legal and tax advice where appropriate.
- Repay the lifetime mortgage before distributing relevant estate assets.
- Keep final lender and redemption documents.
MY LATER LIFE
How My Later Life Can Help
At My Later Life, we help homeowners understand not just how much they might release, but what a lifetime mortgage could mean for their family later.
- Compound interest and inheritance
- Voluntary repayment options
- Drawdown plans
- Inheritance-protection features
- Joint versus sole borrowing
- Moving home
- Long-term care
- What happens when the plan eventually ends
Where equity release is suitable, we can search across suitable lenders and lifetime mortgage plans available through our service.
A well-chosen lifetime mortgage should not only meet today’s needs. It should also be understood clearly enough that your family knows what to expect when the plan eventually comes to an end.
Frequently Asked Questions
What happens when you inherit a house with equity release?
The lifetime mortgage normally needs to be repaid before the property can pass to beneficiaries free of the lender’s charge. The property is often sold, although the family may potentially repay the debt another way.
Do I inherit the equity release debt?
Normally, no. The debt is generally a liability of the deceased person’s estate and is secured against the property.
Do I have to sell an inherited house with equity release?
Not necessarily. If the lifetime mortgage can be repaid from other estate assets or money raised by the beneficiaries, it may be possible to keep the home.
Can I take over my parent’s equity release mortgage?
You should not assume so. The existing lifetime mortgage will normally need to be repaid when the final borrower dies or permanently moves into long-term care.
What happens if one person on a joint lifetime mortgage dies?
The mortgage will normally continue for the surviving borrower, subject to the product terms.
Does interest keep accumulating after death?
Usually, yes, until the lifetime mortgage is repaid. Check the provider’s specific terms.
What if the equity release is worth more than the house?
If the plan meets Equity Release Council standards and the No Negative Equity Guarantee conditions are met, the estate should not normally have to repay more than the qualifying net sale proceeds of the property.
Who tells the equity release company that the homeowner has died?
Usually the executor or estate administrator contacts the provider and supplies the documents the lender requires.
What Happens If You Inherit a House With Equity Release? The Bottom Line
If you inherit a property with equity release, do not assume the debt automatically becomes yours.
The lifetime mortgage is normally a secured liability of the deceased person’s estate.
The lifetime mortgage is repaid from the sale proceeds and the remaining estate is distributed.
Another source of money is used to repay the mortgage so the lender’s charge can be removed.
For joint lifetime mortgages, the position is different because the plan will normally continue for the surviving borrower.
The practical priorities are simple: contact the lender, obtain the redemption figure, confirm the repayment timetable, establish the property’s value and decide whether the family wants to sell or keep the home.
Thinking About Equity Release and What It Could Mean for Your Family?
My Later Life can help you understand lifetime mortgage options, inheritance considerations and the features available across suitable plans through our service.
Call 0207 100 4255 Use Our CalculatorAbout the author
Graham Clelland
Managing Director, My Later Life
Graham writes about equity release, lifetime mortgages and the financial decisions homeowners and their families may face throughout later life.
Important Information
Equity release will reduce the value of your estate and may affect entitlement to means-tested benefits.
A lifetime mortgage is secured against your home. Interest may be added to the amount borrowed and can compound over time.
The Equity Release Council recommends considering the potential impact of equity release on family and inheritance before proceeding.
Read the Equity Release Council guidance.
This is a lifetime mortgage. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.
