MortgagesAug 25 2015

Equity release firms reveal low numbers of porting customers

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Equity release firms reveal low numbers of porting customers

Providers have revealed that just a tiny percentage of their customers choose to take their equity release deals with them if they leave their home in retirement, in response to criticism of the charges levied on those who want to do so.

The Equity Release Council pointed out that if a customer is looking to downsize, they can ‘port’ their loan to a suitable property without incurring a charge.

Even if some of the loan must be repaid because their new property is of a lower value, there will be no early repayment charge unless they want to repay more than they are required to. If a customer wants to do so, the charges will only apply to the extra amount above the required repayment.

Aviva stated that only around 0.4 per cent of their equity release customers move property each year, with 2 per cent choosing to repay their loan.

LV responded that just 0.14 per cent of their customers chose to port mortgages this year. A spokeswoman explained that when taking out equity release, advisers typically ask clients whether they plan to repay the loan.

“For most people they take out a lifetime mortgage with the view of the loan being repaid when they are no longer around.”

From the start of August last year to the end of July this year, only 0.87 per cent of Retirement Advantage customers ported.

Alice Watson, product and communications manager at Retirement Advantage Equity Release, said that the ability to use equity release to move home, or to move an existing plan to another home, is a key feature that is often overlooked.

“We see some customers use equity release to help buy a second property, while some existing customers transfer their equity release plan to a suitable alternative property.”

Legal and General admitted to having limited data since taking over equity release provider Newlife earlier this year, but did state that it levies no early repayment charges for porting customers, if the loan has been in force for 10 or more years and the customer is 88 years or older, or if customers want to make a payment to reduce the outstanding debt.

Andrea Rozario, chief corporate officer at equity release adviser Bower Retirement Services, commented: “I’d suggest the trend is for most people not repaying or porting their loans. People doing equity release want to stay in their homes and won’t choose to pay off early, so I’d expect porting figures to be very low.”

Dean Mirfin, technical director at Key Retirement, agreed that there were no surprises in the low levels of equity release porting, as the basis for the core equity release customer is that they want to stay in their home.

“Those who intend to move and repay the loan are very few, but where they look more shorter term we would always recommend a fixed known cost early repayment charge,” he stated, giving the example of LV’s at 5 per cent for the first five years and 3 per cent years six to 10, with no early repayment charges thereafter.

“In terms of the very low percentage who port and repay the loan, again no surprise, as they usually want to retain any sale profit to use for their own benefit.”

Earlier this month, former tennis player Andrew Castle accused the industry of “rip-off” early repayment charges after his in-laws were left owing £98,000 in just six years after borrowing £70,000 against their home, due to trying to pay off the equity release loan in full when moving into a smaller house.

The couple had to pay an early release fee of £17,500 along with around £28,500 in interest and additional fees, with Mr Castle taking his case to the Financial Service Ombudsman, only to be told the charges had been outlined in documentation signed when the loan was taken out.

peter.walker@ft.com