All new equity release customers taking out lifetime mortgages are now guaranteed the right to make penalty-free partial loan repayments if they want to reduce their borrowing costs.
The Equity Release Council (ERC), which is the trade body for the equity release sector, on March 28 added penalty-free partial loan repayments to its list of voluntary standards, which are designed to protect customers.
The ability to repay some of an equity release loan without paying a penalty has already become a common feature of equity release products over recent years. Last year, more than 120,000 equity release customers made £78m worth of partial repayments, effectively driving down their interest costs by almost £100m over the next 20 years. As such, the introduction of this as a product standard across the board is likely to be welcomed by many homeowners and it’s expected to help customers to save millions in interest.
One of the downsides of taking out an equity release plan is that you reduce any inheritance you might leave your loved ones, as interest racks up, often over decades. The amount you owe is only repaid when you die or move into care. However, enabling people to make penalty-free partial loan repayments means that all new equity release customers have the chance to pay off a portion of their loan and increase their chances of leaving a greater inheritance for their loved ones when they die.
This new safeguard will join a list of four others that apply to more than 700 members of the Equity Release Council. These ensure, for example, that equity release customers have the right to remain living in their home for the rest of their life or until they move into permanent care, and that they may move their loan to a new property (so long as this is allowed under lending criteria) The standards also include a ‘no negative equity guarantee’, meaning that you’ll never owe more than the value of your home.
Jim Boyd, chief executive of the Equity Release Council, said “The right to remain in your home for life, with no requirement to make ongoing repayments and no threat of repossession, has been central to the appeal of equity release since 1991 and remains a core pillar of the modern market.
“Our new product standard adds to this by ensuring people have the freedom to reduce their borrowing if circumstances change. It enables equity release customers to mitigate the effects of compound interest and reduce their borrowing costs in later life, which we know is often one of their main concerns.”
You can read more about equity release and how it works in our equity release guides. For example, find out more about whether it might be suitable for you in our article Is equity release right for me?, and Equity release – what is it and how does it work?
If you’re looking for somewhere to start, you can get expert advice from a Rest Less Mortgages equity release specialist. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.