Scottish Building Society launches RIO mortgage

Michael Lloyd

July 30, 2018

Scottish Building Society has launched a retirement interest-only mortgage up to 50% of the value of the property as a cash lump sum and with interest-only on the loan and no maximum age limit.

Unlike standard interest-only mortgages there is no set end date for settlement of the loan and capital is only repaid after death or on the sale of the house.

It’s available to homeowners in Scotland aged 60 and over who have a reliable monthly income in retirement.

Paul Alexander, head of business development at Scottish Building Society, said: “The move by the FCA to widen access to affordable borrowing for older people presents a real opportunity for intermediaries who previously missed out on this growing market if they were not qualified to provide advice on equity release products.

“Now all advisers can handle this business and can take comfort from the fact that we are already specialists in interest-only later life lending with many years of experience under our belt.”

Alexander added: “We treat everybody as an individual and are expecting high demand for our product, especially when older people become aware of the benefits.

“Where the applicants have a secure income and meet our affordability criteria, a retirement interest-only mortgage may be a more suitable option than equity release.

“It provides an alternative to a house sale or expensive loan repayments and is good news for those nearing the end of a standard interest only mortgage who have a shortfall in savings to repay the loan.

“It also provides an attractive option for managing inter-generational wealth where older people could help younger members of the family buy their first home, for example, and may be an effective tool for reducing any inheritance tax burden.”

This follows the Financial Conduct Authority review into later life lending and proposals to improve access to mortgage borrowing for older people, including those with maturing interest-only mortgages without sufficient funds to repay them.

Scottish Building Society already has over a decade of specialist experience in the market with its interest-only lifetime mortgage which allowed borrowers to unlock cash tied up in homes and pay only the interest on the loan.

As with the new RIO mortgage, when the property is eventually sold the original loan is repaid and the remaining equity stays within the family.

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