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What are RIO mortgages and why are more lenders launching them?

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19/02/2019
Retirement Interest-Only mortgages are designed to support older mortgage borrowers, and they are growing in number
What are RIO mortgages and why are more lenders launching them?

Retirement interest-only mortgages are becoming more widely available, said Moneyfacts, following a rule change last year that aimed to make this type of later life borrowing more accesssible.

The financial information provider said that, almost a year since the Financial Conduct Authority (FCA) reclassified retirement interest-only mortgages (RIOs) in March 2018, there are now 12 providers.

After being regulated under ‘equity release’ rules and regulations, the measure to make RIOs ‘standard mortgages’ was introduced to give older borrowers more choice and open access to borrowing.

But what are they?

Ready for RIOs

RIOs allow borrowers to pay monthly interest on their mortgage until they die or go into long-term care, at which point, the mortgaged property is subsequently sold as a means to repay the loan.

This can be useful for interest-only borrowers who have reached the end of their term and can neither repay their balance nor extend their term under their current lender. A RIO will enable them to continue to pay only interest.

They are also an alternative to lifetime mortgages for those looking to release equity from their homes, to fund retirement, help children onto the property ladder, or to renovate a property for example.

Growing market

There are 38 individual RIO products available in the market, launched by 12 providers, of which all are building societies apart from Hodge Lifetime (a specialist retirement product provider).

Darren Cook, finance expert at Moneyfacts.co.uk, said: “The reclassification of RIO products from under the equity release umbrella in March 2018 must have been a welcome relief for those borrowers who may have reached the end of their interest-only mortgage at an older age and would have had few options open to them.

“Despite our research showing that building societies have been nearly the only driver of the RIO market since its inception, with only three of the 38 total products being offered by a non-mutual, it seems that the older borrower market is also benefiting from banks and building societies scaling back their criteria on interest-only mortgages, as well as extending the maximum age at end of their non-RIO mortgages beyond 80 years of age.

“Last month, Moneyfacts.co.uk reported that the number of mortgages permitted to end when borrowers are aged between 80 and 84-years-old has increased dramatically in recent years, rising from zero in 2014 to 1,078 products.

“Even though non-RIO mortgages with extended age terms do not exactly fit the Financial Conduct Authority’s RIO definition, it seems mortgage providers that don’t offer RIOs are still relaxing their lending criteria on maximum age in line with the spirit of what the FCA is trying to achieve.”

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