New product standard launched in refreshed rules and guidance

Click here to view the rules and guidance.

From today all new equity release customers can benefit from a product feature that has already enabled borrowers to reduce their interest costs by tens of millions of pounds.

The option to make penalty-free partial loan repayments has become an increasingly common feature of modern equity release products.

It 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.

It adds to a range of features and flexibilities and the Council’s four existing product standards, in place since 1991, that form the bedrock of the modern market:

  • 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.

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.

Customers of lifetime mortgages, which account for the majority of equity release products, made more than £78m of penalty-free partial loan repayments last year. 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.

By reducing their loans without committing to ongoing repayments, these customers will make a combined saving of £39m in interest costs over the next 10 years or £99m over 20 years.

The Council’s standards, rules and guidance set out additional voluntary requirements for product providers, financial advisers, legal professionals and others involved in the equity release process. They complement firms’ regulatory responsibilities in order to safeguard consumer interests and include a guarantee that all customers must receive independent legal advice before releasing equity to understand the commitments involved.

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 Council members to support their finances.

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 schemes among people who would consider them.

Jim Boyd, CEO of the Equity Release Council:

“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.”