Our Managing Director, Pat Bunton, gives his view on the misconceptions surrounding RIO mortgages, and what we have done at LiveMore to help make it easier to identify RIO cases.
Changing demographics mean that an increasing number of people approaching normal retirement age are still in need of finance – but finding a shortage of willing lenders or appropriate products.
LiveMore are on a mission to help them overcome these challenges by providing flexible and accessible retirement Interest Only (RIO) mortgages.
Recognising that many mortgage brokers are still unfamiliar with RIOs’, we are making considerable efforts to offer you whatever support you need whilst also clearing up any misconceptions that surround these later life lending solutions.
RIOs were quietly launched in 2018 to try and address issues that arose from the 2014 Mortgage Market Review (MMR). Post MMR mainstream lenders retreated from interest only lending, especially where it took borrowers beyond retirement age. RIOs' simply re-enable borrowers aged over 55 to take an interest only mortgage beyond retirement.
RIOs' have no defined term and simply run until repaid from the sale of the property, death of the borrower, or the point at which they move into long term care. Amongst other things, RIO mortgages allow older borrowers to avoid being forced into expensive short-term mortgages to fit in with retirement age, or where they are being pressured by their lender to sell as they have reached/are reaching the end of their current interest only mortgage term.
RIOs' are classed as mainstream mortgages - they work in exactly the same way
Brokers need to understand that, unlike Equity Release mortgages, RIOs' are classed as mainstream mortgages – this makes perfect sense as they work in exactly the same way. Like any other mainstream mortgage they are interest serviced and assessed for affordability at outset. Importantly though, the affordability assessment is against the interest only monthly payment, not the capital and interest repayment one and on a joint mortgage the affordability assessment takes into account the position should either borrower die.
Some in the market give the impression that RIOs' are complex and can only be sold by those qualified to advise on equity release mortgages. This is simply not true because RIOs' are categorised by the FCA as a mainstream product, brokers do not need to hold an equity release qualification to advise on them.
The only real hurdle is the matter of affordability. Many brokers stumble here simply because they don’t ask sufficient questions during their fact find. Because of this they hit a blank wall when searching for a lender willing to offer an interest Only Mortgage to someone over 55.
By asking these additional questions, the conversation switches to one where you can offer a solution
To help Brokers avoid this frustration we have devised a simple set of additional questions that enable you to look at possible sources of income beyond retirement such as state pension entitlement, defined contribution/benefit pension schemes, annuities and other assets that can be turned into future income.
Our message to mainstream brokers is clear – it’s time to embrace RIOs. They are not as complex as many suppose and affordability is less of an issue if a few simple additional questions are asked. Brokers who hesitate to seize the opportunities represented by RIOs' risk losing customers that they could and should have helped.
To equity release advisers our message is similar - we are eager to help. What’s more, as regulatory interventions will probably further shape the later life lending space we believe that RIO will become increasingly important to you.
Whilst we can’t promise to be able to accept every case, you can be sure we will give it our best shot!
As a new lender to the Later Life Market, we are in an ideal position to share some of our data regarding customers that we have been able to help with a RIO mortgage.
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