The Equity Release Council (ERC) has made penalty-free repayments a new standard for Equity Release member firms.
The new standard was introduced today.
What’s the problem with equity release repayment penalties?
Many equity release providers borrow money via corporate bonds to then lend to people who wish to release equity from their home. A bond is a fixed rate security paying a fixed rate of interest with a fixed repayment date and capital repayment value.
If Rates Rise
If Rates Fall
Interest rates are currently on an upwards track as inflation forces the Bank of England to increase rates to try and curb inflation. This means that corporate debt values of equity release companies is falling meaning less or indeed no penalties.
It is an ideal time for the Equity Release Council to introduce a penalty free repayment standard as equity release companies should likely not make losses when repaying their debt linked to the money that they lent you via equity release.
The Five Equity Release Council Standards
This is fantastic news for the equity release market. Over the years, our circumstances change, we may inherit money, we may win money and wish to repay some or all the debt or we may wish to downsize our property and repay debt. By now having no penalties, this makes it much easier for people to get out of an equity release loan. It may also make equity release more attractive to many property owners that have avoided equity release schemes thus far.