Rule change to make Equity Release more appealing to sceptics

A rule change has been introduced this week in a bid to make equity release customers reduce interest costs.

The option to make penalty-free partial loan repayments enables customers to mitigate the effects of compound interest and cut their borrowing costs in later life.  

This option has now been made a fifth ‘product standard’ or prerequisite for all plans recognised by the Equity Release Council, the representative sector body.

Customers of lifetime mortgages - the majority of equity release products - made more than £78m of penalty-free partial loan repayments last year. Supporters of equity release claim this reduced their interest costs by millions and increased their chances of leaving a traditional inheritance to loved ones when they pass away.

More than 125,000 penalty-free part repayments were made in 2021, averaging £608 each time.

The Equity Release Council guidance sets out voluntary requirements for product providers, financial advisers, legal professionals and others involved in the ER process.

Nearly 700 firms have signed up to practice in line with council standards, including all current product providers. More than 75,000 new and existing customers accessed funds from their properties last year via ERC members.

The equity release concept - which allows people aged over 55 to borrow against the value of their homes - has had a checkered history and independent research from Mintel’s annual Equity Release Schemes study recently revealed “strong consumer protection” is seen as the most important feature of equity release products among people who would consider them.

Jim Boyd, chief executive of the Equity Release Council, says: “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.

“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.”