Equity release customers will save almost £300 million in borrowing costs over the next twenty years by making voluntary penalty-free loan repayments.

New data from the Equity Release Council (the Council) shows that, during 2022 and 2023, homeowners with equity release plans have made more than 360,000 voluntary penalty-free partial repayments to reduce the sizes of their loans.

The total value of repayments also grew by 18% from £102m to £120m from 2022-23

Findings:

  • Over 360,000 voluntary penalty-free repayments were made during 2022 and 2023, with the total value of annual repayments growing 18% from £102m to £120m
  • The number of repayments dipped 9% during 2023, but the average repayment increased by 30% from £538 to £697
  • Repaying just £100 a month could help the typical customer reduce their total borrowing costs by almost £17,000 over a decade and nearly £50,000 over 20 years.
  • Alternatively, making an ad hoc repayment of £700 every year would save almost £10,000 over ten years and nearly £30,000 over 20 years.

Recap of Lifetime Mortgage repayment facility

Lifetime mortgages allow older homeowners to access money from the value of their homes. While the loan plus interest is typically repaid when the customer dies or goes into long-term care – helping to maximise their available money in later life – they can make voluntary penalty-free partial repayments to reduce their total borrowing costs.

Since 28 March 2022, the freedom to make such repayments, typically up to 8-15% of the loan each year, has been a compulsory feature of all products that meet Council standards.

Reducing the amount owed helps to reduce the compounding of interest over time. Crucially, customers do not lose the right to make voluntary part-repayments if they choose not to do so and have no risk of their home being repossessed for missing repayments.

Read about the top reasons people take out equity release.

Because repayments are voluntary, customers are also not required to pass affordability tests to qualify for a loan, unlike with standard interest-only or capital-and-interest repayment mortgages.

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

“These figures highlight how the flexible design of modern equity release products gives customers more levers to pull to adapt to changing circumstances. The blend of innovative product design and clear consumer standards has proved transformative by putting customers in control.

“While equity release helps people maximise their money in later life, with no ongoing repayments required, people are making significant savings by chipping away at their loans when they can afford to.

“Small repayment habits add up to significant savings over time. Voluntary repayments allow customers to access property wealth in the here and now while increasing the chances of preserving something to leave behind as a traditional inheritance.”

The right to make penalty-free repayments, subject to lending criteria, is one of five product standards that help ensure equity release customers are fully informed and adequately protected when releasing money from their homes.

Read more from the Equity Release Council.

The five Equity Release Council standards are:

  • For lifetime mortgages, the rate must be fixed for each release, or if it is variable, the rate must be capped for the life of the loan.
  • You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence, and you abide by the terms and conditions of your contract.
  • You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your loan.
  • The product must have a “no negative equity guarantee”. This means that when your property is sold and agents’ and solicitors’ fees have been paid, even if the amount left is insufficient to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
  • All customers taking out new plans must have the right to make penalty-free payments, subject to lending criteria.

Please contact us today if you need Independent Financial Advice about equity release or wish to review your existing lifetime mortgage.