Norwich Union is capping the early redemption charges on its lifetime mortgage, bowing to pressure from IFAs and mortgage brokers.
The product was criticised last year by IFAs who said the uncapped mark-to-market ERCs were unacceptable because they are linked to long-term gilt yields so if interest rates go down, the ERC could exceed the value of the loan.
NU has put a cap of 25 per cent on the ERC and is also reducing the interest rate on the product from 7.35 per cent to 6.99 per cent for IFA-introduced business, and from 7.49 per cent to 7.29 per cent for direct business.
Marketing manager for equity release Simon McGuinness says: “We know the ERCs have been an issue for IFAs, and hopefully they will see this as a positive move. The cap will provide another level of guarantee to our customers but in reality it is unlikely that they will ever hit the cap.”
Charcol senior technical manager Ray Boulger says: “There is now no reason not to recommend the NU product on the basis that it now has a competitive interest rate. But I would have expected a much lower cap – the OFT put a retrospective cap of 9 per cent on NatWest's mark-to-market ERCs in 1999.”