From 28 March, new lifetime mortgage borrowers will no longer have penalties attached to partial repayments.

Some lenders already offer this flexibility, but the new guarantee will provide this as standard in all ERC-approved loans.

New customers could not only reduce their borrowing, but offset the interest, without signing up for further repayments.

However, it only applies to new applications after 28 March, and not to existing lifetime mortgage borrowers.

David Burrowes, chairman of the ERC, said: “Updating our standards to lock down the ability to make partial repayments on lifetime mortgages – an innovative feature that has become increasingly common in recent years – provides flexibility for consumers and ensures the sector continues to evolve to meet changing demographic needs.

“As recent years have reminded us, people’s circumstances can change and customers who find they can use earnings, savings or an inheritance to reduce their borrowing in later life will be able to do so without incurring early repayment charges.”

Stuart Wilson, corporate marketing director at More 2 Life, said the repayment announcement was great news for both customers and advisers.

“The ability to make penalty-free ad hoc repayments will allow people to better manage their borrowing and potentially help to open up the market to a new range of customers – especially when used in conjunction with interest repayments,” he said.

Since 1991, more than 592,000 new equity release plans were taken out by homeowners aged 55 and over to borrow £38.7bn against the value of their property.