Retirement Interest-only mortgages branded ‘outright failure’
Fewer than 500 RIO mortgages have been sold each quarter with the highest take up in Q4 last year, when 471 were completed.
They were introduced in 2018 and designed to help homeowners struggling to repay interest-only loans when they reach retirement. Often, they were then left on lenders’ Standard Variable Rates (SVRs) and unable to refinance.
In Q2 of this year, 335 RIO mortgages were sold, although this is likely to have been hit by the coronavirus pandemic.
Overall, RIOs accounted for just 0.14% of the mortgages sold in the year to June, falling behind the Financial Conduct Authority’s (FCA) prediction that 21,000 would be sold by 2021.
The figures were obtained by later life lending firm Responsible Life. It said affordability rules needed to be reviewed so RIOs could cater to more borrowers, such as those aged between 55 and 65 who do not have a loan to value (LTV) low enough to qualify for a lifetime mortgage.
The broker firm suggested adjusting criteria to allow the sale of a property to be treated as an acceptable payment plan and introducing the possibility of repaying the loan with a lifetime mortgage where possible.
Steve Wilkie, executive chairman of Responsible Life, said: “RIOs are an outright failure. They should be scrapped in their current form and redesigned around customers in retirement, instead of bolted on to mortgage rules designed for those in full-time employment.
“Many retirees consider themselves wealthy enough to continue living in their home but can’t remortgage because sole survivor rules are too restrictive, and not enough flexibility is afforded to those who plan to downsize in the future but wish to stay in their family home for a limited period.”
Lack of flexibility
He added: “The innovation that RIOs represented when they came to market was well meant but too few people are able to access them.
“The low take up of RIOs tells you all you need to know about how desperately this product needs to be taken apart and put back together again.
“The lack of flexibility and accessibility in the later life lending arena is increasing financial anxiety for consumers and it is entirely avoidable.”
Wilkie concluded: “The most obvious ways to improve accessibility is to allow borrowers to plan for the sale of their home as a repayment vehicle, or convert their loans into lifetime mortgages when it makes financial sense to do so.”