Equity Release Council: penalty-free repayments now “standard feature”

Equity Release Council: penalty-free repayments now “standard feature”

The Equity Release Council has announced that the option for borrowers to make penalty-free partial repayments, will become a fifth “standard feature” for all equity release providers, with immediate effect.

Introduced on Wednesday 28th March, the change has been implemented to help reduce the effects of compound interest and reduce overall later life borrowing costs for customers. The Equity Release Council has calculated that £78m penalty-free partial repayments were made by customers in 2021, and by doing so have reduced interest costs “by almost £100mn” over the next 20 years.

The new fifth standard now adds to the Council’s four existing product standards, in place since 1991, which are as follows:

  • The right to remain living in their home for life, with no repayment obligations to create a risk of repossession before they pass away or move into permanent care;
  • A fixed or capped interest rate for life, so customers’ existing borrowing is never affected by interest rate rises;
  • A no negative equity guarantee, meaning customers will never owe more than their home is worth and can never leave any debt to their families or other beneficiaries; and
  • The right to port (move) their loan to another property providing it is acceptable under lending criteria.

Jim Boyd, CEO of the Equity Release Council, commented:

“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.

The market’s evolution means many customers are already saving tens of millions of pounds in interest costs by making penalty-free partial repayments as and when they can afford to. By introducing the new product standard, we expect many more customers are set to benefit as all new products will have this safeguard built-in.

Equity release today is a flexible financial planning tool for a range of scenarios, from gifting to family to supporting better living standards over longer lives in retirement. Consumers should always use a Council member to explore their options and alternatives to equity release, to benefit from product protections and expert advice to decide if it is right for them.”

Craig Brown, CEO of Legal & General Home Finance, commented:

“Legal and General Home Finance has long-championed innovation and increased product choice in the equity release market so that later life lending can play a bigger role in the future of retirement planning.

People’s needs in retirement are individual, and our products reflect that. Some customers choose to just pay the interest from their loan, while others may decide to make partial repayments, manage the amount of loan they drawdown, or borrow as they need it.

Whatever the requirement, we recognise that a ‘one size fits all’ approach does not work for this market. That’s why we welcome the new Equity Release Council standard, putting greater importance on flexibility and choice across the industry.”

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