We are all living longer (hurrah!) but a lot of us have to work longer (boo!) and this will only increase in the future...
HEADLINES
- Retirement Interest Only mortgages (RIOs) only offered by a few lenders
- This is despite there being a 25% year on year growth of lifetime mortgages due mainly to low fixed interest rates, flexibility and no negative equity guarantees
- Whilst RIO is not a Lifetime mortgage it is effected by this market
KEY CHALLENGES
- Affordability rules by lenders are very strict
- Lending into Retirement which covers RIOs and Lifetime mortgages is an increasing important but potentially vulnerable market
- More consumers want to take their mortgages into retirement hence growth in demand for RIOs
- Advice in this market is critical and there is still a lack of supply in this area
- RIO market is still immature so cannot determine if demand is led by “aspirational” funding or “distress” funding. Lenders still assume it is the latter!
- Are lenders still using 20th century underwriting rules to meet a 21st century type of consumer demand?
- Lenders need to have funding models to support RIOs
CONCLUSIONS/SOLUTIONS
- For 55-65 year olds RIO is usually a better product than lifetime mortgages. 70+ is lifetime mortgages “sweet spot”
- Some lenders are dipping their toe into the water by offering RIOs to their existing customers to help support their needs
- More qualified advisors are needed to give lenders the confidence to offer these products
- Common consensus that this is a product of the future
- Lenders should view RIOs as medium term loans (i.e. 5 or 6 years); a kind of “bridge” between standard residential mortgages and lifetime mortgages
- Therefore the group in the main felt RIOs are a carnival samba not last waltz for Lifetime Mortgages!
