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Sales of Retirement Interest-Only mortgages double in a year

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'RIO' mortgages offer an alternative to equity release, but they are still a very small part of the mortgage market
Sales of Retirement Interest-Only mortgages double in a year

RIO mortgage sales almost doubled last year, according to Responsible Life.

The later life lending specialist found that the number of RIOs sold between July and September last year rose 97.2% to 761 — up from 386 in the same quarter of 2020.

Despite nearly doubling, this only represents 0.22% of the 341,227 mortgage products sold across the quarter.

When they were launched in March 2018, the FCA predicted that around 21,000 RIOs 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.

What are RIO mortgages?

RIOs were designed to remove age as a barrier to remortgaging for borrowers who cannot repay their traditional interest-only mortgages when they hit retirement.

Now borrowers can also use the products to release equity from their homes, if they can afford lower interest-only repayments.

But the affordability tests remain too rigid for many homeowners.

Change for the better?

Responsible Life has called for two important changes to be made to RIOs that would solve the affordability problem.

Firstly, it said that lifetime mortgages should be regarded as a permitted repayment plan for RIOs, once borrowers get older or a partner dies. In other words, the borrower should be able to switch to a traditional equity release plan.

It added that the sale of the property should also be a valid long-term repayment plan should either partner die.

Steve Wilkie, 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.

“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.”

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