How lenders fund lifetime mortgages

Name: How lenders fund lifetime mortgages
Creator: Richard Parker

Equity release rates can seem to move for no obvious reason. They do not. To understand why your rate is what it is, and why some products appear and disappear, it helps to know where the money actually comes from. Lifetime mortgage lending is funded differently from an ordinary mortgage, and that difference shapes the whole market.

Why funding is the key to rates

A lifetime mortgage is an unusual loan. There are usually no monthly repayments, the interest rolls up, and nobody knows exactly when it will be repaid, because that depends on when the borrower dies or moves into long-term care. A lender writing that loan has to find money today that does not need to be paid back for an unknown number of years, and has to be comfortable waiting. The cost and availability of that money is what sets the rate you are offered. So when people ask why equity release rates moved, the honest answer is almost always about funding.

The three main funding models

1. Annuity matching

Many of the largest equity release lenders are life insurers or are backed by them. Insurers sell annuities, which are long-term promises to pay a pension for life, and to honour those promises they hold large pools of long-dated assets. A lifetime mortgage is a useful match for that liability: it pays out over a long, uncertain horizon, just like an annuity obligation. Insurers therefore use lifetime mortgages to back their annuity books. The crucial consequence is that lifetime mortgage pricing is anchored to the same long-dated yields that price annuities, which are driven by long-dated UK government bond yields, known as gilts. This is why our rates versus gilt yields tracker follows long gilts rather than the Bank of England base rate.

2. Securitisation

Some lenders bundle many lifetime mortgages together and sell the bundle, or bonds backed by it, to investors in the capital markets. This is called securitisation. It lets a lender recycle its capital and lend again, and it brings in investors who want long-dated, property-backed income. When investor appetite for these bonds is strong and the cost of issuing them is low, lenders can offer keener rates and more generous terms. When that market tightens, as it can quickly in periods of stress, rates rise and some products are pulled. Much of the visible volatility in equity release pricing comes from this channel.

3. Balance-sheet lending

Other lenders fund lifetime mortgages directly from their own capital and deposits, holding the loans on their balance sheet rather than passing them on. This can give more stability and a longer-term view, but it ties up capital, which regulators require lenders to hold against the risk of the loans. The amount of capital a lender must set aside, and how it accounts for the no negative equity guarantee, feeds directly into the rate. A lender holding loans itself is making a long-term bet on house prices and longevity, and prices accordingly.

Why this drives products, not just rates

Funding does not only move the rate up and down, it decides which products exist at all. A drawdown plan, where you take money in stages, only works if the lender can fund an undrawn reserve cheaply. Generous loan-to-value limits for younger borrowers need funding that is comfortable with very long horizons. Fixed early repayment charges versus gilt-linked ones reflect how the lender has hedged its own funding. When funding markets are calm, you tend to see more features, higher loan-to-values and finer pricing. When they tighten, the menu shrinks. So the products available to you on any given week are a direct read-out of the funding markets behind them.

Richard's view

Clients are often surprised that the Bank of England base rate, which dominates the news, has little direct grip on lifetime mortgage rates. The base rate matters for ordinary variable mortgages. Lifetime mortgage pricing is tied to long-dated gilt yields and to how easily lenders can fund very long loans. If you are waiting for a better rate, watch long gilts and the broader funding picture rather than base rate decisions. And if a particular feature matters to you, such as drawdown or a fixed early repayment charge, be aware it can come and go with funding conditions, so it is worth securing the plan that suits you when the terms are right rather than waiting indefinitely.

Richard Parker, Equity release and later life lending adviser

How this is explained, and the sources

This page is an explainer rather than a data table. It describes how the equity release market is funded and why that funding drives rates and product availability. It deliberately avoids attaching figures to individual lenders, because funding mixes differ between firms and change over time.

Sources for the concepts described: Bank of England data on securitisation and on gilt yields; the Prudential Regulation Authority materials on Solvency II and the capital treatment of lifetime mortgages and the no negative equity guarantee; and lenders' own annual reports, which set out how each firm funds its lending. For the link between gilt yields and equity release rates, see our rates versus gilt yields tracker. Written and reviewed by Richard Parker, June 2026.