This feature is already part of some later life lending plans. However, under new guidelines being introduced today it will become a compulsory element of all products being offered in this sector.
Indeed, being able to make additional repayments means later life lending customers can reduce the impact of compound interest and cut borrowing costs.
Equity release allows people aged over 55 to borrow against the value of their homes without making repayments, unless they choose to, with the interest and loan usually settled when the customer passes away or moves into permanent care.
According to the Equity Release Council, the body which regulates the industry, this new condition will allow customers to make combined savings of £39 million over the next 10 years and £99 million over the next 20 years.
It said, more than 125,000 penalty-free part repayments were made in 2021, averaging £608 each time.
Jim Boyd, CEO 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.”
Standards
This latest feature has become the fifth ‘standard’ to be enforced by the Equity Release Council. It has already established the following prerequisites:
- 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 added: “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.”
