Equity Release Mortgage and Probate: What Happens to the Loan?

Types of equity release

There are two main types of equity release product in the UK:

Lifetime mortgages are by far the most common. The interest roll-up means the outstanding balance at death can be substantially more than the original loan — often two or three times the original sum after 15–20 years.

Loan repayment on death

On the death of the sole (or last surviving joint) borrower, the equity release lender has a right to repayment. Under the Equity Release Council standards, the estate has 12 months from the date of death (or the date the last borrower moved into permanent long-term care) to repay the loan.

During this 12-month period, interest continues to accrue on the outstanding balance — so speed is financially beneficial to the estate. The executor should contact the equity release provider as one of their earliest actions.

The practical steps for repayment are:

1. Notify the equity release provider of the death
2. Obtain a current loan redemption statement (balance + accrued interest)
3. Obtain probate — the lender will need to see the grant
4. Market and sell the property
5. Repay the lender from sale proceeds on completion
6. Any surplus passes to the estate and is distributed to beneficiaries

The no-negative-equity guarantee

A key consumer protection for Equity Release Council members is the no-negative-equity guarantee (NNEG). This means that even if the rolled-up loan balance exceeds the property's sale value — perhaps because of property market falls or a very long-lived borrower with high interest rates — the estate will never owe more than the property is worth.

This protection is important for beneficiaries. Without it, there would be a theoretical risk of the estate being left with a debt after the property is sold. With the NNEG in place, the worst outcome for beneficiaries is that they receive nothing from the property — not that they owe money.

Not all equity release products are Equity Release Council members — executors should check the policy documents to confirm whether the NNEG applies to the specific product.

Joint equity release arrangements

Many couples take out equity release jointly. On the death of the first borrower, the surviving borrower has the right to remain in the property and the loan continues — repayment is not triggered until the last survivor dies or moves into permanent care.

Executors dealing with the first death in a joint arrangement do not need to arrange repayment of the equity release loan. However, they should:

• Notify the equity release provider of the death of one borrower
• Update the loan records to reflect the sole surviving borrower
• Confirm the surviving borrower's ongoing rights and obligations
• Note the equity release as a liability when reporting the estate for IHT (the surviving borrower's share of the joint loan is their liability)

Equity release and inheritance tax

For inheritance tax purposes, the outstanding equity release loan — including rolled-up interest — is a liability of the estate. It reduces the taxable estate value. This means:

• The gross property value is included in the IHT calculation (at probate value)
• The outstanding equity release debt is deducted as a liability
• Only the net equity (value minus debt) forms part of the taxable estate

This can significantly reduce the IHT liability — which is one reason some people use equity release as part of IHT planning. For full context, see our inheritance tax UK 2026–27 guide.

Note: HMRC may challenge deductions for loans that were used to fund gifts, as there are anti-avoidance rules around deducting liabilities against gifted assets.

Selling the property to repay the loan

In the majority of cases, the property is sold and the equity release loan is repaid from the proceeds. The executor manages this process and should follow the standard probate property sale procedure. See our guide to selling a probate property for a step-by-step walkthrough.

One complication with equity release properties: some products impose early repayment charges (ERCs) if the loan is repaid within a fixed period of the original advance. On death, ERCs are generally not charged by Equity Release Council members — but check the product terms.

The conveyancer handling the sale will need:

• The grant of probate
• The equity release policy number and lender details
• A redemption statement from the lender
• Confirmation of any additional charges on the property

What beneficiaries receive

After the equity release loan is repaid and all other estate debts and costs are met, the remaining estate is distributed to beneficiaries according to the will or intestacy rules. If the property equity was the primary asset, beneficiaries may find that the residual estate is smaller than they expected — particularly if interest has rolled up significantly over many years.

It is important to manage beneficiary expectations early. The executor should obtain a redemption statement as soon as possible and communicate the likely net estate value to beneficiaries.

For the overall estate administration process, use our estate administration checklist, complete UK probate guide 2026, and applying for probate guide. The debts after death guide covers the priority order for settling liabilities. For the very first steps, see what to do when someone dies. For the IHT400, see our IHT400 guide. For lender delays when selling, see our lender delays guide. For the executor's first steps, see our executor first steps guide. Farra can guide you through estate administration — get started here.