In order to help give greater flexibility and meet the evolving needs of equity release customers, the ERC has announced a new product safeguard which will help to mitigate the costs of later life borrowing.
From the end of March onwards, homeowners who take out lifetime mortgages which meet the ERC’s standards will be guaranteed the right to make partial repayments of their loans, penalty-free.
What are early repayment charges?
Just like with other types of mortgages, lenders need to include terms for early repayments penalties that have to be paid in the event that borrowers decide to make repayments. It is up to the individual lender and the type of plan but in the past, some have included pretty hefty early repayment charges that have made it near on impossible for borrowers to get out of their equity release plan if they wish to.
This is not an issue for most, as when the majority of equity release plans are taken out, they are done so with the intention that they won’t be making repayments. Lifetime mortgages for example are only repaid once the borrowers have passed away or moved into long-term care and their property is sold, the money from which is used to pay them back.
What does the new safeguard mean for future equity release customers?
Whilst equity release can be a great financial solution for later life borrowers looking to release some much-needed cash, the lack of flexibility with some deals in the past when it comes to making early repayments has been less than ideal.
This new product safeguard means that borrowers taking out lifetime mortgages (that meet the Councils standards) from the 28th March 2022 onwards, will be guaranteed the right to make penalty-free partial repayments of their loans. Not only this but alongside the option to reduce their borrowing, new customers will also benefit from being able to offset the interest on a loan, without having to make an ongoing commitment to further repayments.
Independent equity release advice
With these new changes in place from the ERC, equity release could be the ideal financial solution for later life borrowers for whom maybe it wasn’t before. If you are interested in equity release, want to know more about the new safeguards or have any questions, please get in touch and our experts will be happy to help
