Steve Robinson (pictured), head of lending at Marsden Building Society, said there had been a huge growth in demand for later life mortgages as the over-55 population increased.
As a result, types of mortgages for this age group have also developed and there has been huge innovation in this area.
The most recent addition to the market has been the RIO mortgage which is aimed at people who, as they approach retirement, are unable to remortgage their interest-only loan. It is also available for anyone who wants to take out a mortgage in retirement.
The idea is they make interest-only payments on the loan, eventually paying off the capital using the sale of the property. This is usually upon their death or when they move into residential care.
The Marsden Building Society, which is a RIO lender, has been on the receiving end of a number of enquiries into the differences between RIO and other over-55 mortgages and wanted to explain the differences to potential customers.
Lenders began offering RIOs in Spring this year, just after the regulator, the Financial Conduct Authority (FCA), redefined interest-only deals as standard mortgages.
The problem is they can often be confused with other types of mortgage solutions for the 55 plus age group – also known as later life mortgages or loans for ‘older borrowers’.
Steve Robinson explained some customers might be eligible for both products and have choice around what is most suitable for their needs.
Affordability
He said, when it came to affordability, each applicant on a RIO must demonstrate they can afford the mortgage throughout the term. Meanwhile, mortgages in the ‘older borrower’ range would be assessed as a joint income.
Repayment strategy
The second factor which distinguishes RIO from later life products is the fact it is normally repaid when the property has been sold to repay the mortgage following the occurrence of a life event.
An ‘older borrower’ product, meanwhile, will have a term end date and is suitable for clients who have a repayment strategy – for example, if they are downsizing to a smaller property in the future.
Robinson explained: “A RIO mortgage therefore enables clients to stay in their home for longer.”
He added: “It completely depends on client circumstances, if the client has no plans to sell their home in the future but they’re looking for a mortgage, then the RIO may be the one for them. If however, they want an interest-only mortgage and have future plans to downsize then it’s a great opportunity for them to look at later life mortgages.”
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I am 64 and still in full time employment. If I took out an RIO on a current property then, when retired in a few years, decided to move for whatever reason, would an RIO be transferable subject to property suitability or would I have a problem raising another mortgage of any kind? Upon retirement I may want to move to another area or downsize. What would the best type of mortgage be which would give me mobility should I want it?
Each mortgage will have its own criteria but most of the RIOs are portable if you move home – but you would need to confirm that with the lender and find out if there are any restrictions. The best thing to do is speak to a mortgage adviser that understands retirement mortgages so they can explain your options.
Heather Crinion, General Manager (Operations), at Marsden Building Society offered this response:
“Both our Retirement Interest Only (Rio) and 55+ mortgage products are portable, which means that you can transfer any remaining product benefits to a new property, subject to meeting our lending criteria at that time.
When exercising portability we look at your income and credit history to make sure the loan continues to be affordable to you and also the property you wish to move to. For our RIO mortgage as we look purely at retirement income this means the loan should remain affordable to you throughout the mortgage term and makes product portability more straight forward as long as you have not taken on other credit commitments that we would need to take into account. For advice on which type of mortgage is suitable to you please contact one of our mortgage advisors or speak to a broker who will be able to advise you having reviewed your circumstances.”