"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."
- Jim Boyd, CEO of the Equity Release Council
Equity release customers will save almost £300 million in borrowing costs over the next 20 years by using the freedom to make voluntary penalty-free loan repayments.
New data from the Equity Release 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.
While the loan plus interest is typically repaid when the customer dies or goes into long-term care, borrowers 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 March 2022.
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. 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.
Modest monthly repayments add up to big cuts to borrowing costs
The Council’s analysis shows how a ‘typical’ equity release customer, taking a £60,000 initial withdrawal of property wealth via a drawdown lifetime mortgage, could significantly reduce their long-term borrowing costs by making regular or ad hoc repayments when they can afford to.
For example, making regular £100 monthly repayments would save them almost £17,000 over a decade in total borrowing costs, and almost £50,000 over 20 years. Those savings increase to nearly £34,000 and £99,000 with a regular £200 monthly repayment.
Alternatively, making an ad hoc repayment of £700 ever year would save almost £10,000 over 10 years and nearly £30,000 over 20 years. Doubling that ad hoc annual repayment to £1,400 would boost the savings to over £20,000 and almost £60,000.
Jim Boyd, CEO of the Equity Release Council, commented: “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.”
