Provision of RIO mortgages expands in 2021

Jessica Nangle

February 2, 2021

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New research from Moneyfacts reveals how retirement interest-only mortgages (RIOs) have seen more lenders enter the market over the past year and looks at its current status.

The number of providers that offer RIO mortgages sits at 22, the highest number recorded by Moneyfacts so far.

The number of RIO products available to consumers currently stands at 109, showing a continued, albeit steady, growth in availability over the course of last year.

This is an increase of 35 from the 74 deals that were on offer in February 2020, prior to the onset of the coronavirus pandemic.

The average rate charged on a RIO deal is 3.59%.

While this is an increase of 0.12% when compared to February 2020, the average rate has reduced over the last three months by 0.02% when compared to the 3.61% it had climbed to in November 2020.

Retirement interest-only mortgages were reclassified as mainstream mortgages by the Financial Conduct Authority in 2018.

Eleanor Williams, finance expert at Moneyfacts, said: “It is positive to see a rise in the choice of RIO products available for later-life borrowers.

“There has been an increase of 35 deals since February 2020, which includes a rise of 22 since September.

“The number of providers that now offer RIOs is now at a high of 22, with an addition of three since the start of 2021.

“The average rate for RIO deals has also made incremental moves downwards in recent months, and at 3.59% has dropped by 0.02% since November.

“While these changes seem small, these facts are notable for two reasons; firstly, RIO mortgages are a niche product with perhaps few borrowers for whom they are an appropriate option and make up only a small percentage of mortgage products overall, so any slight positive change impacts the sector.

“Secondly, providers withdrew swathes of mainstream mortgage products last year and choice remains considerably below that seen prior to the onset of the pandemic.

“These positive shifts in both the number of lenders and RIO deals are therefore great news for older borrowers.

“The fact that the average rate has decreased of late also indicates an increase in competition, as providers continue to evolve and look to meet demand.

“Considering that FCA data indicates that there are a significant 40,000 interest-only mortgages due to mature each year between 2017 and 2032 where the borrower will be over-65 at the end of their term, improvements in provision for those who are concerned about their access to appropriate mortgage products as they come to end of their existing interest-only deal are likely to be well received.

“Overall, it is inherently positive that those considering a RIO mortgage now have not only a greater choice of products, but also from a greater choice of lenders.

“However, borrowers considering a RIO mortgage should secure qualified, independent advice to ensure they are picking the right type of product for their circumstances.

“Equity release, down-sizing and other options may be valid alternatives, so having the knowledge and support of a professional in making their choice would be vital.”

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