While the basic design of the products is nothing new, it will be interesting to see how brokers and consumers react to the fact they eschew early repayment charges.
Up until now the scope for avoiding ERCs in the equity release market was limited. Northern Rock did not levy them on its equity release loans below £25,000 nor its cash plus product, but it was the exception. Some providers offered five-year ERCs, such as Mortgage Express.
Demand for non-ERC deals is unclear although there are clients who want short-term borrowing or the option to remortgage onto better terms at a later date. But the products offering low or no ERCs feature higher interest rates. This is true of Coventry’s deals.
For those who opt for short-term arrangements, slightly higher rates don’t pose a problem and may be better than paying ERCs on lower rate deals. But clients waiting for remortgage opportunities if rates fall in the future may find the initial rates too high to bear.
The rates for Coventry’s lump sum and drawdown products are 6.45% and 6.59% on a monthly compound basis. This compares with around 6% for alternatives featuring ERCs. It will be interesting to see how popular the Coventry deals will be, but it’s good that non-ERC products are available as they give consumers more choice.