The Equity Release Council has reported that customers using equity release will save almost £300 million in borrowing costs over the next 20 years having used the freedom to make voluntary penalty-free loan repayments.
New data from the Council shows that, during 2022 and 2023, homeowners with equity release plans have made more than 360,000 voluntary penalty-free partial repayments to reduce the sizes of their loans.
The total value of repayments also grew by 18% from £102m to £120m from 2022-23.
Lifetime mortgages allow older homeowners to access money from the value of their homes. While the loan plus interest is typically repaid when the customer dies or goes into long-term care – helping to maximise their available money in later life – they can make voluntary penalty-free partial repayments to reduce their total borrowing costs.
The freedom to make such repayments, typically up to 8-15% of the loan each year, has been a compulsory feature of all products which meet Council standards since 28 March 2022.
By reducing the amount owed, it helps to reduce the compounding of interest over time. Customers do not lose the right to make voluntary part-repayments if they choose not to do so and have no risk of their home being repossessed for missing repayments.
Because repayments are voluntary, there is also no requirement for customers to pass affordability tests to qualify for a loan, unlike with standard interest-only or capital-and-interest repayment mortgages.
The Council’s data shows that, while the total number of repayments made dipped 9% from 2022 to 2023, the average repayment size increased by 30% from £538 to £697.
The later life lending trade body says this shift suggests that while the frequency of payments was hampered by the current cost of living challenges, customers were still keen to reduce their borrowing when possible. In addition, the increasing total value of repayments made during 2023, and the larger average repayment size, shows that those customers who could afford to do so made more significant inroads to reducing their loan sizes and cutting borrowing costs.
Jim Boyd (pictured), CEO of the Equity Release Council, said: “These figures highlight how the flexible design of modern equity release products give customers more levers to pull to adapt to changing circumstances. The blend of innovative product design and clear consumer standards has proved transformative by putting customers in control.
“While equity release helps people maximise their money in later life, with no ongoing repayments required, people are making significant savings by chipping away at their loans when they can afford to.
“Small repayment habits add up to significant savings over time. Voluntary repayments make it possible for customers to access property wealth in the here-and-now while increasing the chances of preserving something to leave behind as a traditional inheritance.”