Equity release voluntary repayments save customers ‘£300m’

UK homeowners have saved nearly £300 million in interest by making voluntary equity release repayments

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Homeowners who have taken out equity release plans have saved nearly £300 million in interest by making voluntary, penalty-free repayments on their loans. The impressive saving shows how more people are taking steps to reduce their borrowing costs and preserve inheritances.

Equity release allows you to access the money tied up in the value of your home without the need to sell or move house. Typically, you don’t need to repay anything until you pass away or move into long-term care. However, new findings from the Equity Release Council show that many homeowners are making early voluntary repayments that will minimise future interest and reduce the overall size of their loans.

The Council’s data reveals that customers made over 360,000 voluntary penalty-free repayments during 2022 and 2023. The value of repayments increased from £102m to £120m between 2022-23, with each repayment averaging £697 last year.

The growing trend certainly indicates that more people are becoming aware of the benefits of actively managing their equity release plans.

“People are making significant savings by chipping away at their loans when they can afford to,” says Jim Boyd, CEO of the Equity Release Council. “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.”

Substantial savings on lifetime mortgage costs

In a lifetime mortgage, the most common form of equity release, interest typically accrues over the life of the loan. It does this through what’s known as compound interest – and this can see loans grow in size quite quickly. You can use our equity release compound interest calculator to see how much interest can accrue in different circumstances.

One way to prevent or reduce interest from building up is to take out an interest-only equity release plan. This involves paying some or all of the interest each month, as agreed when you take out the plan.

Another option is to make repayments of some of the loan capital itself, either regularly or on an ad hoc basis. This too can substantially reduce the amount of interest that accrues on their plan:

• The research reveals that a typical customer repaying just £100 regularly each month could reduce their overall borrowing costs by almost £17,000 over a decade – and almost £50,000 over 20 years. 
• Alternatively, they could make ad hoc repayments of £700 every year and it would amount to a staggering saving of almost £10,000 over ten years and nearly £30,000 over 20 years.

With over £300 million in future interest already saved by voluntary repayments being made in the last two years, UK homeowners are significantly reducing the costs of equity release borrowing on their properties. 

This approach not only helps them to better manage their finances, but can also help preserve more of their home’s value for their families’ inheritance in the future.

Can I make penalty-free repayments on my equity release plan?

As with other types of loan, making early repayments can incur penalty fees. But lifetime mortgage lenders often let customers make penalty-free repayments, up to a stated percentage of the loan amount.

Whether you can make penalty-free repayments on your own plan depends on two main points:

• How long you have had your plan. The guarantee from Equity Release Council members (see below) that you can make penalty-free repayments applies to new plans arranged after 28 March 2022.
• Who your chosen lender is. Though some other providers may offer this feature, the guarantee only applies to providers who are members of the Equity Release Council.

You can check if your provider is a member of the Equity Release Council by using their member directory here.

If you already have a plan and wish to make voluntary repayments on your loan then contact your provider or adviser to check. They can also confirm the maximum amount that you are able to pay off each year without incurring any early repayment charges.

The Equity Release Council’s five standards

The freedom to make penalty free repayments, typically up to 8-15% of the loan each year, is one of five standards set by the Equity Release Council. These standards help to ensure that customers are fully informed and properly protected when unlocking money from their properties.

All members of the Council must abide by these strict set of standards, which are:

• No negative equity guarantee. This ensures that borrowers will never owe more than the value of their home, protecting them and their estates from owing more than the property is worth.
• The right to stay in your home. Customers have the right to live in their home for life or until the last owner moves into long-term care, providing stability and peace of mind.
• The right to sell your home. You have the right to move to another property, subject to the new property being acceptable to your product provider.
• The right to make penalty-free payments. You have the right to make voluntary payments towards your plan without incurring penalties, up to a certain amount each year depending on your provider’s criteria.
• Fixed or capped interest rates. All equity release products must have fixed interest rates or, if variable, they must have a capped limit, protecting borrowers from unexpected rate increases.

We explain these standards in greater detail in our blog: What are the five equity release guarantees?.

Are you considering equity release?

If you are thinking about unlocking some of your property wealth with equity release, then do get in touch. Call us on 0808 178 3055 and we’ll arrange a no-obligation appointment with one of our selected advisers.

They can confirm your eligibility for equity release and look for the best equity release rates from leading providers. They can also discuss how voluntary repayments work and how different lenders build this option into their equity release products. 

If they do not think equity release is the best financial option for you right now, they will tell you. It is a completely pressure-free opportunity to learn more about how a plan might work for you.

If you’re unable to talk now, request a call back and we’ll call when it’s convenient to you. You can also get a quick estimate of how much money you could unlock from your home with our free equity release calculator.

Related reading

Equity release repayment examples

How equity release payments are saving customers ‘millions’

Understanding the fees and charges of equity release

Sources

Customers have saved nearly £300 million in interest by making voluntary repayments: Equity release customers save almost £300m in borrowing costs through voluntary penalty-free repayments. Equity Release Council. Accessed 25 July 2024.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn