As we enter the third lockdown I thought it would be a good opportunity to share some of the emerging trends we are seeing in this marketplace.
The Interest-Only ticking time bomb at a glance
How our RIO products can help provide peace of mind
It’s only five months since our official launch yet even during that short time there have been some very interesting developments.
Let me start with a snapshot of how the Interest Only time bomb is about to explode. The number of customers coming to the end of their Interest Only terms is starting to climb steeply – for more than a decade.
We have already seen a significant rise in the number of customers who are facing the harsh reality of an Interest Only term end letter dropping through their door. In all likelihood you are also getting anxious calls from customers triggered by this unwelcome mail – if not, you will soon.
Looking at this from the lender’s perspective, and the borrower’s, throws up some interesting discussion points. On the one hand it’s hard to argue that the capital repayment is not due. But the demand for such a large sum in just 30 days seems very harsh from the customer’s point of view.
I appreciate that customers will have been enrolled in a term end contact strategy programme for some time - but there is no escaping the fact that a letter of this nature, at this time of severe financial hardship for many, can still come as a shock.
Selling the property to clear the debt is clearly a viable repayment strategy in purely financial terms but your home is not like most other assets – it is where you live!
Being over 55 myself, and having had an Interest Only mortgage, I realise that 25 years can go pretty quickly when you are working hard and coping with all the challenges life throws at you (and I’m talking pre-Covid!). I can also tell you, from my own experience, that not everyone who passes the age 55 milestone is ready to downsize just yet.
For people who find themselves in such a tight spot an RIO can offer a very welcome solution - LTVs of up to 75% and a wide range of longer-term fixes open up a range of very attractive possibilities.
The fact that payments are fixed at a manageable level provides great peace of mind. However, most of these products also have overpayment facilities that enable the customer to reduce the outstanding balance if their circumstances allow and they so choose.
Our RIO products are therefore well worth discussing at annual review meetings – before that bombshell letter hits the doormat!