ERC launches safeguard to mitigate costs of later life borrowing

The fifth product standard is being introduced to mark the 30th anniversary of consumer protections first established by the council’s predecessor Safe Home Income Plans.

ERC launches safeguard to mitigate costs of later life borrowing

New equity release customers will be able to mitigate the costs of borrowing in later life through a product safeguard launched by the Equity Release Council (ERC).

From 28 March 2022, all customers taking out lifetime mortgages that meet the council's standards will be guaranteed the right to make penalty-free partial repayments.

This means new customers can reduce their borrowing, as well as offset the interest, without making any ongoing commitment to further repayments.

The fifth product standard is being introduced to mark the 30th anniversary of consumer protections first established by the council’s predecessor Safe Home Income Plans.

The council has marked the occasion with the publication of a report, supported by Standard Life Home Finance, which explores the sector's progress and evolution in the past three decades.

The report found that since 1991, more than 592,000 new equity release plans backed by council standards have helped homeowners aged 55-plus to access £38.7bn of property wealth to support their finances.

2021 also saw the sector return to growth for the first time in three years, with more than 76,000 new and returning customers making use of equity release.

Further statistics provided by the ERC showed that it represents 1,551 registered practitioner and its provider members offer over 700 recognised products backed by stringent consumer safeguards.

For every £1 of equity released, the ERC said the market generates £2.34 towards the wider economy.

In addition to the 10th edition of its standards, including the fifth product safeguard, the council has also confirmed a number of planned initiatives for 2022. These include establishing a tech forum and legal competency framework to support practitioners.

David Burrowes, chairman of the Equity Release Council, said: “Updating our standards to lock down the ability to make partial repayments on lifetime mortgages – an innovative feature that has become increasingly common in recent years – provides flexibility for consumers and ensures the sector continues to evolve to meet changing demographic needs.

“As recent years have reminded us, people's circumstances can change and customers who find they can use earnings, savings or an inheritance to reduce their borrowing in later life will be able to do so without incurring early repayment charges.

“Introducing a fifth product standard is the latest milestone in a decades-long commitment to robust consumer safeguards.

"The ongoing process that started in 1991 has been key to building trust in equity release, which has become a multi-purpose product that is adaptable and adept in a variety of scenarios and contexts.

“The safeguards and standards the council has worked to develop and uphold over the years will stand consumers in good stead as socio-economic factors give rise to a further increase in demand to access property wealth.

"The priorities we have set out today will help to further evolve the sector and provide good later life consumer outcomes.”

Kay Westgarth, head of sales at Standard Life Home Finance, added: “Standard Life Home Finance is a relatively new entrant to this market, however we are building on the great work that the industry has done to raise standards, educate consumers and ensure it is possible for over-55s to safely access their housing equity.

"As an industry, we have come a long way in a relatively short period of time but there is always room for improvement.

“The introduction of a fifth standard is to be celebrated as it will allow customers to better manage their borrowing and ensure that products work for their individual circumstances.

"It is this type of innovation that will ensure we see another thirty years of growth and change for this vibrant market.”

Will Hale, chief executive of Key, said: “At the end of 2021, 85% of plans offered the opportunity for the borrower to make penalty-free partial repayments but today’s announcement means that from the end of March all new customers can benefit from this flexibility.

"As the Equity Release Council marks thirty years of setting standards, it is a great step forward and will help to ensure that customers can actively manage their borrowing in a way that suits their individual circumstances through the lifetime of their plan.

“While the industry has come a long way in three decades, the pace of innovation has accelerated recently as increasing numbers of over-55s look to these products for support their needs and wants in older age.

"Today’s announcement should be welcomed but we need to keep pushing the boundaries and consider how we can adapt both products and advice for an ever more varied profile of customers looking to explore later life lending options.”

Stuart Wilson, corporate marketing director at more2life, added: “Today’s announcement of the fifth product standard for the equity release market is great news for customers and advisers.

"The ability to make penalty free ad hoc repayments will allow people to better manage their borrowing and potentially help to open up the market to a new range of customers – especially when used in conjunction with interest repayments.

“The last few years have seen real innovation in this market and this new product standard helps to highlight the hard work that the council, advisers, lenders and other members of the industry have put in to pushing the sector forward.”