Equity Release Mortgage: Enhanced Standards can Save Money for New Customers

The Equity Release Council has just launched a new standard guaranteeing customers the right to make penalty free partial repayments of their loans.

It means new customers can not only reduce their borrowing, but offset the interest, without making any ongoing commitment to further repayments.

What is an equity release mortgage?

Equity release or an equity release mortgage is a way for older people (usually retired or semi-retired) to unlock the equity or release capital (cash) from their property, while continuing to live in their home. These funds can be used for various reasons such as helping children and grandchildren, travel, repaying a debt, or anything else you may wish to do in retirement. 

What is the Equity Release Council?

The Equity Release Council (ERC) represents the equity release sector and exists to promote high standards of conduct and practice in the provision of and advice on equity release which have consumer safeguards at its heart.

The ERC standards and safeguards have allowed the sector to grow, giving financial advisers and their customers confidence in the products, dispelling myths about equity release, and educating the public about the potential to access the wealth in their home for a variety of uses.

How the latest review by the Equity Release Council can help reduce the overall cost of an Equity Release Mortgage

The industry has clearly innovated over the past five to ten years, however there is no room for complacency and still more to be done to ensure customers are being served in the best way.

How was interest on equity release mortgages previously managed?

An integral part of the lifetime mortgage has previously been ‘the interest roll-up’. Most people who take out equity release, use a lifetime mortgage. Usually you don't have to make any repayments while you're alive. Instead, interest is 'rolled up', which means the interest is typically added to the loan. 

And why are equity release mortgage standards changing?

Having the ability to make payments was found to be an overwhelming consumer priority and a survey of Council members indicated 93% support for this new standard.

Any products recommended by NM Finance meet the required standards of the Equity Release Council, meaning servicing the interest throughout the term is possible. Additional voluntary payments towards the principle debt can also be made. Servicing interest and additional payments are both optional.

All products recommended by NM finance include a no negative equity guarantee. This means the level of debt will NEVER surpass the value of the property the loan is secured against. 

Equity Release Council launches new standard allowing new customers to make repayments - reducing the cost of the mortgage

In response to the survey, the ERC has updated its standards to ensure that all lifetime mortgage products include a facility to make voluntary payments to mitigate against negative equity. Across a 100 case analysis, there was the strongest and most overwhelming desire to make changes in this area. This means that consumers are further protected.

The ERC checklist - protecting you and your money

To facilitate this change to their standards, the ERC checklist has also expanded and now has 25 points which all ERC members should use. As a member of the Council, we ensure that we are offering the right advice and right products, at the right time.

Recent cost of living rise

The demand for equity release is set to increase further due to the impetus of a whole range of social and economic trends – not least the recent rises in fuel and utility bills with benefits and pensions not increasing to keep pace. Consumers are facing an unexpected need to enhance their income just to maintain a standard of living - and future plans to change car, go on holiday, help the children/grandchildren are now being considered ‘unlikely’ at best.

Release equity and unlock the value in your home

Many thousands of people in the UK could unlock the value in their homes – they are either unaware, are unsure or have limited knowledge of the products available. 

What does the NM Finance Equity Release Service include?

Prior to a Fact Find, part of our advice includes exploring all of your other options to raise funds using the 25 point checklist. This is to assess suitability for equity release.

We will cover the following:

• Benefit assessment - to check what you’re entitled to - pension credit, or council tax reduction. Even if you are relatively financially stable, you can be eligible for help
• We can recommend appropriate support services to help with debt management or to adapt your home
• We use our experience to ensure you get exactly what you need, now and in the future.
• If we decide that you require additional funds now or in the future, we can help you to arrange equity release that allows further draw downs of funds at a later date, without re-applying.
• We also carry out a budgeting Fact Find - looking at where you could save money instead of spending

We're proud of our Equity Release services, our experts prioritise your interests and look after you every step of the way. Find out more about Equity Release Mortgages here.