Equity release borrowers to get a reprieve on hefty fees if they move in with relatives

Many equity release borrowers who need to move in with a relative who cares for them can now do so without punitive fees to exit their loans. 

New consumer protections have been launched by standards body the Equity Release Council which means lenders who sign up to its code will waive their early repayment charges in this scenario. 

Normally, borrowers must pay the charges if they need to repay their loan before they die. 

They are also waived if the person goes into long-term residential care, but moving in with family because of health needs was not previously covered. 

A medical certificate will need to be provided for proof of the person’s care needs. 

Early repayment charges on equity release vary but they are often high – up to 25 per cent of the amount borrowed in some cases. 

Waived: Equity release early repayment charges won’t apply if the borrower is moving in with their family because of medical needs. This applies to Equity Release Council member lenders

They might be fixed at the outset of the loan, or linked to the price of Government bonds (gilts). 

Equity release allows homeowners over the age of 55 to tap cash from on their home’s value in their retirement – or in the approach to retiring – by taking a loan repayable after their death or when they enter long-term care. 

The most popular form of this is a lifetime mortgage. 

Borrowers are advised to consider their options carefully, as interest on the loans compounds over time and can be substantial – especially if they live for a long time. 

This reduces the amount of value left in their home that can be left as an inheritance. 

Many equity release plans now allow borrowers to pay some of the interest or balance back during the life of the loan, if they want to, which can keep costs down. 

> Ten steps to consider before using equity release

The new rule on family care is one of six ‘product standards’ put in place by the Equity Release Council, which aim to improve trust in the sector. 

Only lenders which are members of the Equity Release Council agree to abide by these. This includes many of the major providers such as Just Group, Aviva and Legal & General. 

Michelle Highman, chair of the Equity Release Council standards committee, said: ‘With an aging population, more people need care and support, but a care home is not always a person’s first choice, this change gives customers more freedom to find the right option for them.’

Alongside the new protection, the Equity Release Council has also introduced a new ‘consumer charter’.  

This is a document which outlines what customers can expect when working with an Equity Release Council member. 

Highman added: ‘The new Consumer Charter outlines exactly how people who use a member of the council should expect to be treated. 

‘Consumers should expect that they can trust in a tailored, thorough and transparent process that ensures they receive the right outcome based on their individual circumstances. 

‘It is designed to help people confidently explore all their options and if they choose to take out a product, it highlights how they will to be treated for the life of the loan.’