2018 was the year of the RIO
Paul Lewis (pictured) is national development manager at Mansfield Building Society
2018 will be remembered for many reasons but perhaps in the mortgage market, one of the most memorable developments is the continued growth in the product options available to later life borrowers.
When we do look back at this 12-month period, we might well be able to say that this was the year that later life lending took a considerable step away from its previously niche status.
Part of the reason for this has to be the development of retirement interest-only (RIO) mortgages.
The FCA has placed these products within the mainstream mortgage rules, rather than tying them up with, for example, equity release. Whilst making RIO freely available is a good intention, we believe that later life borrowers need a broad consideration of product options in this space.
Our view – as a lender that launched our RIO mortgages this year – is that the current regulation of the product doesn’t quite capture the holistic requirements of dealing with later life clients.
Advisers in this space should no doubt recognise the importance of ensuring all potential product options are covered off, whether they be RIO, equity release, or a more mainstream mortgage option with a higher maximum age, for instance.
We believe that the consumer outcome is best served if the adviser concerned is able to cover all those bases, which is why we require advisers recommending our RIO product to have either a CeRER or CertER qualification.
In that way, we believe the client is much more likely to secure the right product for them, rather than one recommended simply because the adviser concerned has the authorisation to be active in this space.
One thing is certain however, and that’s the fact RIO has provided a further string to the bow for advisers and a further opportunity for borrowers, particularly those asset-rish/cash-poor retirees who might wish to release equity from their home for any number of reasons, but do not want to see the interest roll-up. There are also those who are currently coming to the end of interest-only mortgage terms and may not be able to repay the capital balance yet, but wish to continue making interest payments.
One of the important points that is often forgotten with later life borrowers is that their situation can often remain a ‘moveable feast’. By that, I mean that securing a later life lending product at some point in their retirement, for instance, does not necessarily mean their needs have been completely satisfied and the adviser will never interact with them again.
Far from it. Some retirements now last as long as the individual’s working life, and that’s a considerable period to cover in terms of making sure your retirement income lasts. Because of this, we felt it was important to provide an additional drawdown element to our RIO product in recognition that – as long as they are within the maximum LTV of 40% – the client could come back and secure further money if they felt they needed it.
This could be an important option to help ensure the client knows they have the flexibility of accessing finance further down the line rather than feel pressured into making a one and only decision. Like any client it’s important to keep in constant contact and to ensure they know that options, such as a RIO drawdown, are available to them should they need to call upon them.
Overall, we believe RIO products are both here to stay and will deliver further opportunity for those advisers active in this space. The likelihood is that competition will grow, and so will innovation around the product, which should hopefully ensure we have a well-catered for later life borrower community who know what good advice looks like and (crucially) where to access it.