Retirement interest only mortgages (RIOs) are on the rise, following the news this week that Ipswich and Nottingham building societies will offer the product.
RIOs allow borrowers to pay monthly interest on their mortgage until they die or go into long-term care, at which point, the mortgaged property is subsequently sold as a means to repay the loan.
The Financial Conduct Authority (FCA) reclassified RIOs in March last year, and despite a slow start, which saw only five providers offering them as recently as July 2018, the number now stands at 12.
There are a total of 38 RIO products on the market, all of which are offered by building societies, with the exception of one specialist retirement lender.
Darren Cook, finance expert at Moneyfacts.co.uk, said: “The reclassification of RIO products from under the equity release umbrella in March 2018 must have been a welcome relief for those borrowers who may have reached the end of their interest-only mortgage at an older age and would have had few options open to them.
“Despite our research showing that building societies have been nearly the only driver of the RIO market since its inception, with only three of the 38 total products being offered by a non-mutual, it seems that the older borrower market is also benefiting from banks and building societies scaling back their criteria on interest-only mortgages, as well as extending the maximum age at end of their non-RIO mortgages beyond 80 years of age.
“The number of mortgages permitted to end when borrowers are aged between 80 and 84-years-old has increased dramatically in recent years, rising from zero in 2014 to 1,078 products.”
Tom Gurrie, intermediary sales manager at Vernon Building Society, which launched a RIO back in 2015, before the change in FCA regulation, said: “It is great to see more lenders enter the market. In our experience, RIOs are particularly useful, not only for interest-only borrowers facing a shortfall, but also as an alternative to a lifetime mortgage for some borrowers. Of course, in all cases advice is essential.”