Expert discusses whether ERCs should be scrapped for later life customers
Against the backdrop of a persistently challenging economic outlook, later-life customers have found themselves grappling with a series of hurdles.
High among them is the exacerbating effects of early repayment charges (ERCs), which have compounded the woes of individuals seeking financial flexibility.
Mortgage Introducer reached out to an expert to explore the detrimental impact of economic uncertainties on later-life customers, and how ERCs act as barriers preventing them from making financial moves.
Should ERCs be scrapped?
Simon Bridgland (pictured), broker and director at Release Freedom, said he finds immense value in championing a transformative shift within the financial industry, particularly by emphasising the pivotal role of scrapping ERCs in later-life loans.
“From my perspective, allowing clients the ability to pay off part of their loans represents not just a financial strategy but a psychological win, instilling a sense of comfort that resonates even if clients do not actively use this option,” he said.
The crux of the matter, Bridgland said, lies in the stringent stance on ERCs prevalent among many products and lenders in the later-life loan landscape.
“The common practice of imposing a 10% penalty with a 10-15 year penalty period, I believe, poses a significant barrier for clients seeking to make changes to their financial arrangements,” he said.
However, Bridgland said that certain lenders have embraced the times and allowed enhanced flexibility for their clients.
“I commend innovators like more2life, which stands out with a comparatively lenient four-year penalty period, and Canada Life, adopting a more flexible approach with an eight-year penalty period,” he said.
These examples, Bridgland believes, represent a positive shift towards greater flexibility in the industry.
The real impact of scrapping or minimising ERCs, Bridgland said, extends beyond individual transactions, it holds the potential to foster greater product innovation within the sector. By challenging the status quo and offering clients more favourable terms, Bridgland said, lenders can distinguish themselves and contribute to the normalisation of later-life loans being penalty free.
“more2life, with its four-year penalty period, emerges as a trailblazer, setting a standard that could inspire other lenders to follow suit,” he said.
This perspective, Bridgland said, aligns with the belief that increased competition and innovation are essential for the growth and normalisation of later-life loans being penalty free.
Is there rising demand from clients for flexibility?
Bridgland has observed a growing interest among clients in the ability to service interest on their loans.
“While not yet a widespread trend, I have noticed an uptick in client inquiries about this option,” he said.
This shift in client behaviour, Bridgland said, underscores the evolving nature of financial preferences and the industry’s need to adapt to changing demands.
“My advocacy for scrapping ERCs within later-life loans goes beyond a financial consideration,” he said.
In fact, Bridgland believes it reflects his nuanced understanding of the psychological aspects of client satisfaction, the challenges posed by traditional ERC practices, and the potential for industry-wide innovation.
“As I applaud the examples set by more2life and Canada Life, I envision a future where greater flexibility becomes the norm, ultimately benefiting both clients and the financial sector at large,” he added.
Do you believe ERCs should be scrapped for later life customers? Let us know in the comment section below.
