Early repayment charges (ERCs) - FAQs
Is there a guide to the differerent ERC models on offer?
- Yes, we have three guides that can be shared with customers which explain how each of the ERC models work, including worked examples to show how the early repayment charge is calculated. The guides are available to download on Aviva connect or by following these links:
- Fixed percentage early repayment charges explained click here
- Gilt index early repayment charges
- For variable individual gilt-based early repayment charges explained (for all customers who applied for their lifetime mortgage before 21st October 2021 and all customers who chose a gilt-based ERC between 21st October 2021 and 24th January 2022) click here
- For variable gilt index early repayment charges explained (for all customers considering, applying for, or who received an illustration and applied for a lifetime mortgage on or after 24th January 2022) click here
- No. At the time of launch there will be no difference in interest rate or LTV scale available. All available product features and ERC exemptions remain unchanged.
- The basis on which to request the KFI will need to be the Adviser's decision. If KFI's are required on both a fixed and gilt-based ERC then the adviser will need to submit two quote requests.
- Further borrowing (in the form of both additional borrowing and drawdown from the cash reserve) is based on the initial borrowing terms and conditions which set out the basis on how the ERC will be applied.
Will an ERC apply if I re-broke a customer back to Aviva?
Yes. If you are satisfied following the advice process that this is the best outcome for your client, then you can undertake a rebroke/product switch. As this is classed as a voluntary early redemption, then an ERC may apply in line with your client's product terms and conditions.
Will there be any changes to the ERC exemptions?
- There are 8 exemptions to paying an ERC. The first 7 are the same whether the fixed ERC or the gilt-based ERC model is chosen. Then there is an additional exemption specific to each ERC model. These are:
- If the customer has a joint lifetime mortgage and repays it within 3 years of the date either their partner dies or they tell us that one of them needs long-term care.
- When the lifetime mortgage is repaid because the customer and all borrowers have either dies or meet our long-term care criteria.
- The customer moves property and transfers their lifetime mortgage to the new property, subject to the current lending criteria.
- If the customer wants to move to a new property that doesn't meet our current lending criteria but are eligible for downsizing protection.
- The customer wants to sell part of their property and we give our consent
- The customer would like someone to move into the property with them as a joint borrower and for the lifetime mortgage to be repayable when the last person dies or goes into long-term care.
- The customer is making voluntary partial repayments up to a maximum of 10% per year of the total amount borrowed.
- Fixed ERC specific exemption
- The fixed early repayment charge period has ended. This is currently 15 years after taking out the lifetime mortgage unless the customer has borrowed an additional amount or a cash reserve amount after their initial loan.
- Individual gilt-based specific exemption
- The gilt linked to the customer's lifetime mortgage has expired.
- Variable gilt index specific exemption
- The early repayment charge term has ended
Are there any changes to the application form or other documents you issue to us or customers?
- There are no changes to our application forms. Flex-tool users will notice the addition of a new drop down to allow the option to select either the fixed or gilt-based charge. The selected ERC model will show on the PQS which must be attached to the application form if a quote proceeds.
Where does it show to me and the customer which ERC model has been applied?
- The Key Facts Illustration and offer document sets out full details of the ERC in-line with the prescribed MCOB requirements.
Where can I get up to date information on the ERC that applies to a customers policy and how do I get an up to date redemption figure?
- From an Adviser perspective: MyClients will show the current ERC for all policies where the adviser is the current servicing agent.
- Customers will be able to login to MyAviva to see the same details that their adviser can in MyClients.
How is the ERC basis applied when customers take cash reserves or additional borrowing?
- If the customer's initial loan is taken out with a fixed ERC, then any further borrowing (additional borrowing or drawdown from a cash reserve) will also have a fixed ERC applied to it. Similarly if the initial loan is taken out with the Individual gilt-based ERC or the new Variable gilt index ERC then any further borrowing (additonal borrowing or drawdown from a cash reserve) will also have the same ERC as the initial loan applied to it. The KFI and offer document for additional borrowing and the confirmation letter and statement for a withdrawal from a cash reserve will set out the terms of the ERC which is applicable at the time the borrowing is taken.
Do the changes impact customers making voluntary partial repayments?
There is no change for customers eligible to make voluntary partial repayments.
Fixed ERCs - FAQs
- There is no change for existing customers, they will continue to retain the ERC basis on which their lifetime mortgage completed. Therefore, when they take additional borrowing or a drawdown from a pre-agreed cash reserve we will apply a gilt-based ERC which the customer will already be familiar with, as it will have formed the basis of the original advice they received. Following the introduction of the fixed ERC option - additional borrowing or drawdowns will inherit the ERC option of the initial borrowing.
- The product option will be available to select via your standard quote request process:
- Flex-tool users will see a new field added allowing them select with a fixed or gilt-based ERC
- Users of third-party portals will see Aviva returned in the results when the option of a fixed ERC has been selected.
Why are you introducing fixed ERC's ?
- Although Aviva lifetime mortgages are designed to last the mortgage holder’s lifetime (or until they enter permanent residential care), plans can change. Advisers told us that an increasing number of their clients prefer to know beforehand how much they’ll need to pay back if they end their lifetime mortgage early. Advisers and their clients will now have a choice between a gilt and a fixed ERC basis.
- The charge is a fixed percentage of the loan, including interest accrued up to the date of repayment. The percentage depends on how long the loan has been in force.
Year loan is repaid Early repayment charge (percentage of loan plus added interest)
Years 10 to 15 1%
Year 16 or later No charge
Is there a closing administration charge if a customer redeems after in year 16 or later?
- There is no redemption admin fee applicable to voluntary early redemptions when the business was written after the 18 April 2011. For full details of administration fees which apply in other redemption scenarios please see the current tariff of charges guide available on our website.
- Yes, the fixed early repayment charge is calculated based on the amount of loan and accrued interest up to the date of repayment, therefore voluntary partial repayments will have been taken into consideration prior to the charge being calculated.
- Existing transitional arrangements will remain valid. Please refer to your recent rate change communications for specific details of the dates and transitional arrangements which are currently in force.
Gilt linked ERCs - FAQs
Why are you introducing a new variable gilt ERC model?
- We have updated our variable ERC option so that all new borrowing uses the FTSE 15 year Actuarial Gilt Index as a single reference point. This aligns more closely to the variable ERC models offered by other providers in the lifetime mortgage market. We have also taken the opportunity to simplify the calculation used to determine the value of any applicable ERC, which is set out in our updated early repayment charge explained guide.
I have submitted a case on the old variable ERC basis and now want to switch it to the new variable ERC basis, what do I need to do??
- At Quote Stage: Request a new KFI on the new preferred ERC basis. This will be quoted on prevailing rates..
- Once an application has been submitted to Aviva, you (the adviser) will need to notify Aviva that you no longer wish to proceed with the current application, and we will cancel it. We expect you to request a new KFI (which will be on prevailing terms). If your client wish to proceed with an application on a different ERC basis, then you will need to re-submit the application form along with the new PQS form.
- If a Valuation has already been instructed/undertaken then we will ensure that this is matched up with the new application (A new valuation would be required if the original has passed it's 28 week expiry).