Its members commit to following a set of five product standards: fixed or capped interest rates (for lifetime mortgages), the right to remain in the property, the right to move to another property, the ‘no negative equity guarantee’ and the right to make penalty free payments.
[3] Two types of equity release product are available in the UK: a lifetime mortgage and a home reversion plan.
With both types of product, repayment to the equity release provider is typically made through the sale of the property when the customer passes away or moves into long-term residential care.
[4] The UK Prudential Regulation Authority expressed concerns in 2018 that firms investing in ERMs should 'properly reflect' the cost of the no-negative-equity guarantee.
The paper recommended modelling the guarantee as a series of put options expiring at each period in which cash flows could mature, weighted by the probability of mortality, morbidity and pre-payment, using a version of the Black–Scholes pricing formula.