We’re an ageing population with increases in life expectancy set to continue. As a result, older borrowers become more prevalent for a number of reasons and so the mortgage market has had to adapt and accommodate this growing sector.
Why is the sector growing? Well, as we live longer, we may seek a mortgage for a variety of reasons including:
- Buy a suitable home to retire in.
- Top up a pension pot.
- Make a gift to a younger family member to help them onto the property ladder.
- Pay off an existing interest-only mortgage, where the borrowers are unable to redeem the capital balance.
Historically, most older borrowers may have considered a mortgage that allowed them to release some of the equity they’d built up in their property. Such lending would have been classed as a Lifetime or Equity Release Mortgage. The FCA reclassified Lifetime Mortgages as Retirement Interest Only Mortgages (RIOs) in March 2018 and this reclassification has enabled a wider range of lenders to offer these mortgages to borrowers.
Broadly, RIOs are available for those aged over 55, with no maximum age limit. Borrowers need to prove that they can afford the interest-only mortgage payments into retirement. The lender will, therefore, assess a client’s projected income in retirement to ensure the monthly interest payments can be met.
What’s the difference between Equity Release and a RIO? In simplest terms, a RIO requires the monthly interest to be paid, whereas that isn’t always the case with Equity Release.
Additionally, a RIO will be based on ability to meet the interest payments, whereas Equity Release is determined by the borrowers age and health.
There is no fixed repayment term on a RIO. The loan is repaid when a life event occurs. This might be moving to another property, the sale of the property, moving into residential care, or death.
RIO mortgages are now more widely available than ever before. Previously as Lifetime Mortgages, regulation required that they were only available through specialist equity release providers. Now, many small to medium size building societies offer a RIO product, and this looks set to continue. Perhaps one of the larger lenders will come up with a RIO product – watch this space.
It is advisable to work with a whole-of-market broker when sourcing any mortgage. With access to both high street and less well-known specialist lenders, whole-of-market brokers like the team here at Mortgage Search Go will source the very best deal for you based on your current position and future needs. Call our team on 0844 69 333 60.
Your property may be at risk if you don’t keep up repayments on your mortgage.