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Leeds BS retirement interest-only entry aims to head-off mis-selling risks

  • 30/07/2018
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Leeds BS retirement interest-only entry aims to head-off mis-selling risks
Leeds Building Society is prioritising broker education to reduce potential mis-selling risks with its launch into the retirement interest-only (RIO) market.


The lender is launching with three deals – a two-year, three-year and five-year fix for borrowers aged between 55 and 80 – and has already confirmed it will introduce a product transfer process.

While the Financial Conduct Authority’s (FCA’s) decision to recategorize retirement interest-only mortgages has generally been welcomed, concerns have been raised across the industry that there are potential mis-selling risks for older borrowers.

Leeds Building Society director of product and distribution Jaedon Green told Mortgage Solutions that it was providing training videos and broker and customer check lists to ensure borrowers were fully aware of the product’s terms.

“We think there’s a responsibility for lenders to provide some work that allows customers to borrow safely and brokers to advise safely,” he said.

“We want to make sure of the quality of advice up front and guidance to customer and try to make sure brokers are equipped with the right knowledge.

“It’s not right for everyone and we want them to be aware of other solutions,” he added.

Green hopes this approach will prompt other lenders to take similar steps when they enter the market and may begin to set an industry standard.


Broker only

Green expects more lenders to enter the market within the next six to 12 months and there to be significant competition for remortaging and product transfers when the first loans begin to mature.

The retirement interest-only product will be available only through advisers initially and the lender has yet to decide whether it will be offered direct at all.

“It is a new market and we expect people to go to an intermediary where they see good advice and that’s important,” Green continued.

“As it builds up and becomes more common we will look at our direct channel, but we need to make sure people are experienced and comfortable doing this transaction.”

The FCA regulations clarify the difference between retirement interest-only and lifetime mortgages.

Unlike a lifetime mortgage, the interest on a retirement-interest only mortgage cannot be rolled up so the borrower will need to demonstrate interest only repayments are affordable throughout the length of the loan.

A retirement interest-only mortgage will be repaid on a specified life event, which can include the sale of the property, moving into residential care, or the death of the borrower.


Different requirements

L&C Mortgages associate director David Hollingworth said: “Retirement interest-only has the potential to offer older borrowers an alternative option to a traditional mortgage over a specified term or to lifetime mortgages.

“The regulator’s move to increase access to retirement interest-only recognises that older borrowers will have different requirements that could be better served from a wider range of options.

“The market needs a broader choice available to these borrowers and the launch of Leeds BS into this sector is an important step forwards,” he added.



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