7th May 2019
It’s probably fair to say that going back a few years interest only mortgages were on the receiving end of some less than positive publicity thanks to their link with the mis-selling of endowment policies. Nevertheless, the basic premise of an interest only mortgage, that of only having to cover interest until such time as the capital payment is due, means that these mortgages may still prove to be a good fit for certain borrowers.
One area in which the market for interest only mortgages is expanding is that of retirement mortgages. That is partly thanks to a reclassification and relaxation of criteria in 2018 by the Financial Conduct Authority, thereby enabling Retirement Interest Only (RIO) mortgages to be offered by a wider range of lenders.
Whilst some RIO mortgages have a finite repayment date, the majority only require the capital sum to be repaid when the borrower dies, moves into residential care, or the property is sold. As a result, borrowers are only required to cover the interest payments without having to take out an associated repayment vehicle.
Naturally this is subject to borrowers being able to maintain the interest payments; as with other types of mortgage properties are at risk if borrowers do not keep up the repayments. Accordingly, borrowers need to be happy that their retirement income would service the interest payments, even should interest rates rise. Those whose retirement income may not be sufficient or who may prefer not to tie up income in this way may find that another type of equity release scheme such as a lifetime mortgage may be preferable. However, as this type of mortgage rolls up interest it is important that professional advice is taken and the pros and cons fully understood before making a decision.
That said, RIO mortgages may be worthy of consideration, for example, for those who may be looking to purchase a retirement property or to release some equity in their existing property. Those borrowers who may not have sufficient capital or savings to repay an existing interest only mortgage may also wish to consider remortgaging as they approach retirement. It is worth noting that whilst criteria differ between lenders, in general the minimum age requirement for a RIO mortgage is 55.
Thompson Jenner Financial Services specialist mortgage advisor Philip Dalley commented that “retirement only mortgages could prove to be a good solution for those who are looking to raise equity against their property in retirement.” However he went on to say that “as with any financial decision individuals need to take professional advice in order to ensure that they fully understand their options and the consequences of any decision.”
If you would like to find out more or meet to discuss the financial services which we are able to provide, please contact Philip Dalley at either our Exeter or Exmouth office on 01392 258553 or 01395 279521 to arrange a free initial meeting. Philip holds the Advanced Mortgage Qualification and is a member of the Society of Mortgage Professionals.