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UK Retirement Interest-only Mortgages Start to Take Off

Housing-Market / Mortgages Feb 19, 2019 - 01:57 PM GMT

By: MoneyFacts

Housing-Market

It is almost a year since the Financial Conduct Authority (FCA) reclassified retirement interest-only mortgages (RIOs) in March 2018, and despite a slow start, two new providers have joined the sector in the past week, taking the total to 12.

After being regulated under equity release rules and regulations, the measure to make RIOs standard mortgages was introduced in response to demographic and economic changes, and to promote more options for older borrowers who may arrive at the end of their interest-only mortgage term and have nowhere to turn.


RIOs allow borrowers to pay monthly interest on their mortgage until they die or go into long-term care, at which point, the mortgaged property is subsequently sold as a means to repay the loan.

Darren Cook, Finance Expert at Moneyfacts.co.uk, said:

“After the FCA gave the green light on RIOs, there were expectations that these types of mortgages would be widely available as an additional option to borrowers. However, providers were initially slow to introduce RIO mortgages to the market, with only five products having been launched by two providers by July 2018, three months after the go-ahead.

“Moneyfacts.co.uk research now shows that there are 38 individual RIO products available in the market, launched by 12 providers, of which all are building societies apart from Hodge Lifetime (a specialist retirement product provider). Ipswich Building Society and Nottingham Building Society have introduced RIO products for the first time during the past week.

“The reclassification of RIO products from under the equity release umbrella in March 2018 must have been a welcome relief for those borrowers who may have reached the end of their interest-only mortgage at an older age and would have had few options open to them.

“Despite our research showing that building societies have been nearly the only driver of the RIO market since its inception, with only three of the 38 total products being offered by a non-mutual, it seems that the older borrower market is also benefiting from banks and building societies scaling back their criteria on interest-only mortgages, as well as extending the maximum age at end of their non-RIO mortgages beyond 80 years of age.

“Last month, Moneyfacts.co.uk reported that the number of mortgages permitted to end when borrowers are aged between 80 and 84-years-old has increased dramatically in recent years, rising from zero in 2014 to 1,078 products.

“Even though non-RIO mortgages with extended age terms do not exactly fit the Financial Conduct Authority’s RIO definition, it seems mortgage providers that don’t offer RIOs are still relaxing their lending criteria on maximum age in line with the spirit of what the FCA is trying to achieve.”

moneyfacts.co.uk is a financial product price comparison site, launched in 2000, which helps consumers compare thousands of financial products, including credit cards, savings, mortgages and many more. Unlike other comparison sites, there is no commercial influence on the way moneyfacts.co.uk ranks products, showing consumers a true picture of the best products based on the criteria they select. The site also provides informative guides and covers the latest consumer finance news, as well as offering a weekly newsletter.

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