UK Finance’s later life mortgage lending report showed that completions rose from 436 in Q1 to 748 in Q3.
The body noted that the number of completions was significantly lower than other forms of finance for those aged 55 and over due to affordability constraints with RIOs.
However, it said more lenders were entering the space and offering the product not only as an option for borrowers already on an interest only mortgage but also those looking for alternatives to other later life finance.
The report showed RIOs were being used as a substitute to lifetime mortgages, as borrowers could afford to repay the interest each month rather than watch it accumulate.
This was indicated by the similarities in borrower characteristics for those with a RIO and those with a lifetime mortgage. The average RIO loan size was £89,000 compared to a lifetime mortgage average loan size of £98,000. Also, the average borrower age for both mortgage types was 70.
Meanwhile, the average value of interest-only mortgages used by older borrowers was significantly higher than other options at £298,000. Borrowers also tended to be younger at an average age of 61 which UK Finance said could be down to them selling the property to pay off the loan at the end of the term.
Charles Roe, director of mortgages at UK Finance said: “Our focus on retirement interest-only (RIO) mortgages shows they have grown in popularity since their launch in 2018. These products provide a good alternative for customers where a lifetime mortgage may not be the best fit, however, take up is lower than other later life products due to affordability.”
Later life lending slips as stamp duty holiday ends
Overall, there were 44,130 later life mortgages completed in Q3 2021, a quarterly decrease of seven per cent.
According to UK Finance, this was a six per cent rise on the same period last year.
The reduction in later life mortgage volumes was down to a drop in the number of products taken out by those aged between 55 and 69 as house purchases slumped in line with the end of the stamp duty holiday.
Some 11,460 mortgages were taken out for purchase during the period, compared with 13,180 in Q2 and 13,020 in Q1.
Lending to older borrowers aged 70 and over remained stable at 6,480, a slight rise on 6,460. UK Finance said this was because borrowers at this age tended to require finance outside of purchases and use equity release instead.
Total later life lending amounted to £6.46bn during the quarter, down from £7.36bn in Q2. However, this was up on the £5.86bn lent during Q3 last year.
Roe added: “Following the end of the stamp duty holiday, mortgage lending to over 55s declined seven per cent in Q3 compared to the previous quarter, mirroring the wider market. However, there was a slight rise in lending to those aged over 70 as people sought to release equity in their property rather than moving home.”