More 2 Life has claimed that equity release customers are to avoid early redemption charges on lifetime mortgages due to the all-time low on gilt yields.
It says they could in future be able to remortgage for more competitive lifetime mortgages without penalties as long as they opt for gilt-backed early redemption charges.
Currently customers can choose between lifetime mortgages with gilt-backed charges or those charging a set percentage of the initial loan for early redemptions – the average charge is 15.8% with the lowest at 3%.
However, More 2 Life says that ‘typical’ gilt-backed early redemption charges are only payable if the FTSE UK 15 Year Gilts Index is lower than the lender’s benchmark yield when the loan is taken out. More 2 Life’s is currently 3.11%.
With gilt yields currently at an all-time low lenders with gilt-backed charges will be unlikely to have to impose them – and that is likely to remain the case as yields rise, the lender claims.
Typically early repayment charges on lifetime mortgages range from 5% of the original loan to a maximum of 25%. Most apply for the first five or 10 years of the loan although some last for the lifetime of the loan. Early redemption charges do not usually apply when a customer moves house and takes the loan with them or moves into long-term care or dies.
Jon King, managing director of More 2 Life, said: “Low gilt yields have generally been bad news for retirement incomes but they are genuinely good news for equity release customers and brokers.
