Instead, a lack of affordability checks run by mainstream brokers and fewer customers needing the product than expected may explain why the mortgage has not been as popular as hoped.
When asked why the take up of retirement interest-only (RIO) mortgages had been low Les Pick, head of sales, equity release at Canada Life said the feedback he received from brokers suggested affordability on the first death was the main barrier.
However, Pallett said it was also an issue of mainstream brokers having a fear of asking questions around pensions and taxations in order to gauge affordability. She said if this information was gathered, determining eligibility would not be as much of an issue.
Pallett (pictured) added: “There have been a lack of tools to help people understand and run affordability, but if you’ve got a basic affordability calculator, you can actually run an affordability check to see what someone’s maximum borrowing would be with six or seven questions. It’s really simple and easy to do.
“It’s a myth that affordability is the only issue.”
Customer needs
Esther Dijkstra, managing director, intermediaries at Lloyds Banking Group also added that because borrowers were more aware and had plans in place for later life, there was not a huge need for a RIO.
She said: “Before the financial crisis, interest-only was the norm or people just didn’t think too much about it and what it meant to have an interest-only mortgage.
“The public in general – since the financial crisis – have of course been more educated about it because lenders in the interest-only space highlighted to customers that ‘you do need to pay off this mortgage’.”
Dijkstra added: “People who come to that stage are more aware and might have solutions where maybe some of us didn’t expect them to. But they have saved up the money or they have found other ways to plan for that moment and therefore there might not be so much need as we first thought.”
You can register to watch the virtual Later Life Lending Online Event here: https://www.mortgagesolutions.co.uk/events/later-life-lending-event/venues/register-online/
Presentations will be available to watch for 30 days.
