Speaking with Mortgage Solutions, chief executive Leon Diamond said because many mortgage prisoners from before the financial crisis would have been on interest-only mortgages, modern alternatives needed to be explored.
Livemore launched in July 2020 with a key focus of helping mortgage prisoners, Diamond added.
“We’ve designed our products to do so. And today, we’ve helped a number of mortgage prisoners with some really solid outcomes,” he said.
Last year, the Financial Conduct Authority (FCA) said 195,000 mortgage prisoners on closed lender books remained and Diamond said many borrowers on both closed and open mortgage books could be refinanced onto current interest-only rates.
However, before Livemore launched the majority of solutions available were capital and interest repayment mortgages, he said.
He added: “That really doesn’t help a number of those borrowers because they’re used to paying interest-only mortgages.
“What we’re able to do in effect is extend their mortgage, put them on to a new rate, extend their duration and allow them to have an interest-only product with the ability to make up to 10 per cent capital repayments per cent per year, if they so decide.”
Diamond said that gave borrowers “a little bit more flexibility”.
He also said borrowers with a mortgage on an open book and close to maturity often claimed to have a repayment strategy in place when they did not or assumed remortgaging will be easy. This means when it comes to refinancing, many are unable to because of their age or because the capital and repayment structure is unaffordable.
In this case, an interest-only mortgage would probably be better, Diamond said.
Livemore recently reduced its minimum age to 50 as he said a number of mortgage prisoners would be in this bracket, and need the option of an interest-only product. The lender currently only offers RIOs.
Diamond revealed that Livemore would be launching two products in coming weeks, one being a RIO mortgage and the other an interest-only product.
Diamond said with respect to communications from the FCA regarding suitable products for mortgage prisoners to move on to, there was not enough awareness around the options offered by the later life market and interest-only.
Diamond said: “In [the] early days, you saw customers go to brokers and brokers not being able to satisfy the needs or meet the affordability that the customer needed. So, it had quite a negative impact on the customer, and to an extent the mortgage broker, because they did a lot of work and couldn’t place a deal.”
He said when it came to equity release, the issue was a lot of mortgage prisoners were not suitable because of loan to value (LTV) and age constraints, as well as property type.
Livemore lends up to 75 per cent LTV and its oldest mortgage prisoner borrower is an 87-year-old single lady, while its oldest borrower overall is a 92-year-old woman.
When speaking of the slow progress with the growth of RIOs, which still only make up a small proportion of mortgage lending due to restrictive criteria and affordability, Diamond said Livemore’s underwriting and criteria meant it was able to take on borrowers other lenders could not.
“Some of the some of the players who initially joined the RIO mortgage space most probably didn’t have a specialist lending arm. They were typically building societies. Because we’re a specialist lender, we understand the different types of income and assets.
“We don’t see the problem as much as what is reported in the market on the stress of first death,” he added.
Livemore accepts borrowers up to the age of 80 on a RIO and takes state pension and assets into account when calculating affordability.
Diamond said: “The awareness needs to be around a solution for the customer, rather than trying to fit the customer into a product. And I believe historically, what you have seen is the customer has come along to a later life lender or broker and they’ve typically been sold an equity release product.
“What the industry needs to look to move to is being a solutions provider for customers. And that is where we see Livemore moving. First with RIO mortgages, next with interest-only mortgages and we will be increasing our offering as time goes on.”
He added that there was scope for Livemore to move into more mainstream mortgage lending in the long-term.
Educating the market
Speaking of the business development managers (BDMs) the lender recently appointed, Diamond said there would be some engagement with brokers, headed by Alison Pallett, about the options for borrowers.
He added: “We were just trying to show that RIOs do fit in the market, unlike what we have historically seen.”
He said although it was coming off a low base, there were signs that the product was being sold more.
“We do see both interest-only mortgages and RIOs being key for the over 50s who are underserved.”
Livemore will put its attention on specialist and equity release brokers and Diamond said “there was a need for education” among the latter, stressing the importance of looking at offerings outside of equity release.
He said: “The perception of RIO mortgage does fail on first step we see is some of the some of the players who initially joined the RIO mortgage space most probably didn’t have a specialist lending arm; they were typically building societies.
“Because we’re a specialist lender, we understand the different types of income and assets.”