Why Retirement Interest Only mortgages offer more flexibility to homeowners in their later years
James Chutter, Corporate Account Manager explores the options for later life borrowers.
The rise in property values has meant that, in many cases, a homeowners’ most valuable asset is their home. But for some, their later life income may not be as much as perhaps they thought it might be.
With people living longer and healthier lives, expectations of the sort of lifestyle people want to lead in their later years may have changed and become more aspirational. The desire to travel, once pandemic restrictions are lifted, to continue working full or part time, or to embark on new hobbies, pastimes or adventurous projects are now much more the ‘norm’ for the over 55s.
Perhaps the only thing that could prevent people from realising these aspirations is the lack of flexibility offered by the financial options available to them. Fortunately, with the help of expert independent financial advice, there are now more credible and accessible options that they can investigate. One of which is Retirement Interest Only (RIO) mortgages.
So, to start with, what does a typical RIO customer look like? Well there’s no one size fits all. It can range from those planning their retirement, to those who are asset rich but income poor and wanting to release a lump sum, to customers who are currently on an interest only mortgage.
From numerous conversations we’ve had with intermediaries, the most common reasons customers take out RIO mortgages are:
- to raise a capital lump sum to give to their children to use as a deposit for their own home
- to fund home improvements
- to fund a holiday of a lifetime
- to provide a lump sum that will help them purchase a second home or holiday let that could generate additional income in retirement
- their current interest only mortgage term is coming or has come to an end and they’re no longer eligible for a standard interest only mortgage because of their age
The good news is that the Financial Conduct Authority regards RIO mortgages the same as conventional mortgages so you can apply the same procedures to customer applications. If you already advise on mainstream mortgages, you may find that advising on RIO isn’t as complicated as you might think. Have a look at how you can adapt your advice process, adding in any extra information you need to capture to help you expand your business into the RIO sector. There is likely to be plenty of potential customers looking for this sort of advice in the years ahead.
In terms of business opportunities for brokers there is huge potential. Currently, many advisers simply pass on what they regard as prime equity release customers to one of the major specialists in the market. But with RIO mortgages offering customers a viable alternative, it enables intermediaries to include them in their advice proposition.
We recognise that those customers entering their later years needed greater options, which is why our wealth of experience in RIO mortgages can provide you with the support you need. Our BDMs are well versed in the technicalities of these mortgages and there is a great deal of supporting material available - including a compliance checklist.
For more information on RIO mortgages and the support we can offer you and your customers visit our RIO Hub here.