Customers can cut their future interest costs by £116 million
Equity release customers made 190,374 penalty-free repayments in 2022, up 48% from 2021, according to the Equity Release Council’s (ERC) Spring 2023 Market Report.
More than 90,000 equity release customers reduced their loans by a total of £102 million last year by making partial repayments. By reducing their loans in this way, these customers can save a further £116 million in future interest costs over the next 20 years.
Since March last year, making voluntary penalty-free part repayments was made a compulsory feature for all products that meet Equity Release Council standards. This means that customers can choose to make repayments while they are still alive, reducing interest costs and preserving more of their property wealth for future use or to pass on as an inheritance.
The latest ERC Market Report also showed equity release activity reaching record levels in the second half of 2022, despite the after-effects of the mini budget in September, prompting a slowdown in the fourth quarter.
Since then, product pricing has fallen gradually over the last five months to an average of 6.23% at the start of April 2023, with advertised rates as low as 5.52%. Product numbers have also edged back towards 200, although maximum loan-to-values (LTVs) have been tightened from 47% in August 2022 to 38.7% in April 2023.
“Modern equity release is an incredibly versatile product,” said David Burrowes (pictured), chair of the Equity Release Council. “People can choose whether they want to make repayments without fear of losing their homes, and since this feature was embedded into Equity Release Council standards, we have seen people’s usage grow and their interest savings add up.
“By making modest repayments when they can afford to, customers can benefit from their property wealth in the here-and-now while reducing their overall borrowing costs by tens of thousands of pounds.”
Burrowes added that a nation where so many pensioners struggled to afford a moderate standard of living simply could not ignore the potential for property to help bridge the gap, with equity release potentially making a decade of difference or more to someone whose pension income might otherwise only cover a basic lifestyle.
“The option of turning property wealth into pounds in their pocket has never been more important for consumers and our ageing society,” he stated. “As the market recovers from the economic shocks of late 2022, it is vital that people consider the role of their homes in covering the costs of later life.”
Les Pick, director of manufacturing and adviser proposition at later life lender more2life, said that while there was no doubt that the mini budget impacted product choice, as well as customer demand, green shoots were starting to appear as wider product choice, higher LTVs, and lower interest rate returned to the market.
“The report highlights how these shoots are being supported by a range of product flexibilities which would have been unthinkable even 10 years ago,” Pick added. “The ability to make penalty-free ad hoc repayments was enshrined as the fifth Equity Release Council product standard over a year ago and has not only allows people to better manage their borrowing but opened the door to more innovative thinking.
“If later life lending products are to take their rightful place in how people approach retirement planning, we need to keep pushing the boundaries and considering how we can develop products which continue to meet customers’ needs.”
Alice Watson, head of marketing communications at lifetime lender Canada Life UK, reiterated the need for financial advice today due to a combination of limited pension adequacy and the ongoing cost-of-living crisis.
“As an industry, we must continue to look ahead and innovate to meet the needs of an ageing population under pressure and highlight the role that property wealth can play as part of a holistic retirement plan,” she said.
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