Equity release customers save almost £300m in borrowing costs through voluntary penalty-free repayments
- Over 360,000 voluntary penalty-free repayments made during 2022 and 2023, with the total value of annual repayments growing 18% from £102m to £120m
- Number of repayments dipped 9% during 2023, but the average repayment increased by 30% from £538 to £697
- Repaying just £100 a month could help the typical customer reduce their total borrowing costs almost £17,000 over a decade and almost £50,000 over 20 years
- 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
Equity release customers 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 Equity Release Council (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.
Customers Capitalising on Fifth Council Product Standard
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. Crucially, 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.
Table 1: Voluntary penalty-free partial repayments by equity release customers
| 2022 | 2023 | |
| Number of voluntary partial repayments made | 190,377 | 172,711 |
| Average interest rate of loans where repayments were made | 3.87% | 4.39% |
| Total value of voluntary partial repayments made | £102,445,071 | £120,375,322 |
| Average size of repayment made | £538 | £697 |
| Interest saved over the next 10 years | £48,317,175 | £66,195,983 |
| Interest saved over the next 20 years | £119,422,652 | £168,794,011 |
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. 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, CEO of the Equity Release Council, comments:
“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.”
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.
Table 2: Potential savings by making voluntary penalty-free partial repayments
| Saving by repaying £100 per month | Saving by repaying £200 per month | Saving by repaying £700 per year | Saving by repaying £1,400 per year | |
| Total cost over 10 years | £16,905 | £33,810 | £10,215.64 | £20,431.27 |
| Total cost over 20 years | £49,456 | £98,912 | £29,886.28 | £59,772.57 |
Note: examples are based on an interest rate of 6.57%, the average paid by new drawdown lifetime mortgage customers in H2 2023
The right to make penalty free repayments, subject to lending criteria, is one of five product standards which help to ensure equity release customers are fully informed and properly protected when releasing money from their homes.
The five standards are:
- For lifetime mortgages the rate must be fixed for each release or, if variable, the rate must be capped for the life of the loan.
- You must have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract.
- You have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your loan.
- The product must have a “no negative equity guarantee”. This means that when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
- All customers taking out new plans must have the right to make penalty free payments, subject to lending criteria.
