Responsible Life analysed figures obtained from the Financial Conduct Authority (FCA) which found RIO mortgages only accounted for 0.22 per cent of the market in Q3 however, a marginal improvement on the 0.11 per cent it made up in 2020.
This means RIOs accounted for one in every 450 products sold at the time.
The lender said the progress of the product was “poor” and affordability remained a barrier for many.
It said RIOs were originally intended for interest-only mortgage holders to transition onto once they retired. However, the need for borrowers to prove they can afford RIO repayments if their partner dies is where many fall short.
This leaves those who are too young for a lifetime mortgage trapped on a lender’s standard variable rate and unable to refinance, Responsible Life warned.
Changing the RIO
Responsible Life called for changes to be made to the RIO such as allowing lifetime mortgages to be considered as a payment plan once borrowers get older, or when a partner dies. It also proposed for the sale of the property to be a valid long-term repayment plan should either partner die.
The lender said in its current form, the RIO will never become mainstream despite there being a demand for them.
As of the latest UK Finance data, there were 908,000 outstanding interest-only mortgages at the end of 2020, which could be suitable for a RIO.
When RIOs were launched in March 2018, the FCA predicted that around 21,000 would have been sold by 2021. However, only 3,213 had been sold by the end of 2020, rising to 5,029 by the end of September 2021, according to the FCA.
Steve Wilkie (pictured), executive chairman of Responsible Life, said: “Sales of RIOs have doubled annually but this was from a very low base. It still has to be said that progress has been poor and RIOs still aren’t making a dent in the problem.
“Hundreds of thousands of people face hitting retirement with conventional interest-only mortgages they cannot repay and RIOs could be a tremendously useful product. But they must be capable of reaching a wider audience, and that all comes down to how easily applicants pass affordability tests.
“This is something this product was specifically designed to assist with, so perhaps it’s time policymakers looked again at the way they’re structured to avoid creating new mortgage prisoners.”
Wilkie said the situation could worsen this year, exacerbated by the rising cost of living.
He added: “The sole survivor rule is one key area that could be overhauled, because it means that each individual borrower must show they can afford the monthly payments on their own.
“An easy way around this rule would be to allow borrowers to plan for the sale of their home as a repayment vehicle, or convert their RIO into a lifetime mortgage when it makes financial sense.”
