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LLLE2019: RIOs are a disservice to lifetime mortgages market, brokers say

  • 22/11/2019
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LLLE2019: RIOs are a disservice to lifetime mortgages market, brokers say
A lifetime mortgage or equity release product is often the better option over a retirement interest-only (RIO) product for younger customers, advisers have said.


Speaking at the Mortgage Solutions Later Life Lending Event at the Royal Garden Hotel in London, Paul Soraya, director at Viva Retirement Solutions (pictured) said RIOs had put the lifetime mortgage market at a “disservice”. 

In response to a question about why RIOs hadn’t taken off, Soraya said: “I think it was positioned as this all-conquering product that could eventually help people out of interest-only prisons and people who don’t want equity release products.  

“Unfortunately, due to affordability and eligibility it cut a lot of people out of the picture.” 

Earlier this month a Freedom of Information request put to the Financial Conduct Authority by This Is Money found that since its inception in March 2018, fewer than 700 RIO mortgages had been approved. 

Soraya added that due to RIOs being an ‘in word’ he often had people asking for the product despite the broker knowing they would not be entitled to one. Instead he said he found that “very often a lifetime mortgage actually suits them better. 


RIO needs refocus 

Will Hale, CEO of Key Financial Solutions, said the focus of RIO mortgages needed to change to “address the needs of a slightly different customer profile” namely younger customers aged between 55-60 that often don’t fit equity release because of the loan to value they require.

He noted customers of this profile were being “poorly served” by the RIO and mainstream mortgage markets as they were often being rejected for borrowing due to issues with affordability.

“It’s positive that RIOs are encouraging customers to engage in the later life lending market, but many will end up being advised to take an equity release plan” he said.

“This makes sense when you consider current rates are broadly comparable to RIOs, many modern equity release products offer the ability to service interest and/or repay capital and they come with added protections such as guarantee of tenure and a no negative equity guarantee.

“If you consider the products side by side, equity release often trumps a retirement interest-only mortgage for many customers,” he added.


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