You are here: Home - Better Business - Business Skills -

What to be aware of with retirement interest-only mortgages – Hanley Economic

by: David Lownds, head of marketing and business development at Hanley Economic Building Society
  • 29/10/2018
  • 0
What to be aware of with retirement interest-only mortgages – Hanley Economic
Lending into later life is an issue which has risen in prominence within the lending community, intermediary marketplace, regulation and even in government circles.

 

From a lending perspective this has long been an area of opportunity, but also one which providers have previously shied away from due to a mix of complexity, risk, appetite and regulatory boundaries.

However, times are changing. In terms of demand and innovation, forward strides have been made with equity release products growing in number and interest rates falling.

Regulatory shifts have also influenced certain areas within this marketplace.

In an effort to broaden product choice in the later life lending sector, the Financial Conduct Authority (FCA) now treats Retirement Interest-Only (RIO) mortgages as standard mortgages, instead of being regulated under equity release rules.

This factor, among others, has resulted in several lenders adding retirement interest-only mortgages to their portfolios.

With this in mind, let’s take a brief look at some of the basics surrounding this product and how it might work in practice for your clients.

 

What is a RIO mortgage?

Simply put a RIO mortgage allows homeowners to pay just the interest on their mortgage. The remaining capital of the loan is paid off in the event of:

  • A sale of the property
  • The homeowner having to move into residential care
  • The individual finding alternative accommodation, such as moving in with family

 

Benefits of RIOs

Flexibility – it can allow homeowners to make overpayments with no penalties. They can also make regular repayments by increasing monthly direct debits or make a lump sum payment to help decrease the amount of interest they pay.

There is no maximum age across many of these products, and rates are becoming more competitive.

 

What to be aware of

RIO mortgages are generally only on offer to applicants who are already retired, not to those who are close to retirement.

For joint applications, each applicant should be able to afford the total repayment individually.

Although it is not a rule, it’s prudent for borrowers to have Lasting Power of Attorney (LPA) in place when considering taking out a RIO mortgage. This can often be done through their own solicitors and there is also an opportunity for intermediaries to support better clients in this area.

 

Aligned with mainstream

Despite lending into later life becoming ever more aligned with the mainstream mortgage market there remain clear differentiators, and there is an even greater emphasis on the importance of the holistic advice process.

To continue this positive forward momentum, it’s evident that providers, trade associations, the regulator and the intermediary community must work even closer to generate and advise on appropriate solutions which cross these lending boundaries.

That way all ages within the mortgage chain will stand to benefit.

 

 

Tags

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
  • RT @robjupp: Great day yesterday for donations to @MortSleepOut. With Gift Aid, we are now close to £17,000. It would be great to get to £2…

Read previous post:
Brokers should pressure conveyancers to smooth completion process – Beth Rudolf

For all of us involved in the house purchase process, there is no better moment than completion, particularly if it’s...

Close