Retirement Interest Only Mortgages – your guide to understanding the opportunity and process


retirement interest only mortgages or
RIO provides an important bridge between a traditional mortgage and that of
lifetime or equity release type mortgages consumer demographics are
changing as are their attitudes to retirement pension reform provides
options for customers in retirement and the customers tell us they want similar
options for mortgages RIO provides that our solution for some customers
it’s importantly provides a traditional type of mortgage but beyond the point of
retirement RIO is very different lifetime equity
release type lending it’s not a replacement it’s another option for
consumers it’s subject to affordability because the customer needs to be able to
continue to service the loan throughout their retirement and that’s really
important on equity release that requirement isn’t there because often
the interest will roll up within the mortgage RIO is best suited to elder borrowers
there are two particular audiences he’ll find it beneficial to their
circumstances but will rely on the advice of intermediaries to help them
one group are those with an interest-only mortgage already they’re
likely approached in the end of the term and there’s probably a balanced in
outstanding in which case RIO provides a solution whereby they can carry on
paying their mortgage beyond the point of retirement
the second audience are those who are looking to lease equity from their home
but have sufficient affordability that they can afford to service that debt
they can make the monthly payments and therefore it provides additional options
for them we expect a number of lenders to release
RIO products over the coming months the regulator’s provided guidance that’s
really helpful but there will be small differences between different product
providers so it’s important that intermedius understand the differences
in the products available in developing our proposition we had four key
considerations one safeguarding your customers to making the protis easy and
straightforward for you as the intermediary 3 ensuring the right
support was available through investment in our business development occurs and
our underwriters and finally for RIO is a long-term commitment it’s a product
which will run for a number of years as such it’s important that lenders provide
the tools for intermediaries to continue to support their customers for this
reason we’re committing to providing product transfers through intermediaries
for RIO mortgages the nature of RIO is that is a long-term
commitment so it’s important that intermediaries to give you a holistic
view of the customer situation does their mortgage and their broader
finances to help you make the right decisions we’re here support you through
that process and we’re committed to providing a product transfer solution
ready for when the first RIO deals as you’d expect intermediaries will have
access to our business develop managers that’s business as usual for us and
they’re here to help in addition to that we’ve provided a guide to RIO it’s there
to help stir you through the challenges of working through a RIO case it’ll take
time to the brokers to get used to these products and that’s why the guides
available there will be circumstances where you’ll want to refer for
additional advice expertise and that could be weather implications on
taxation or on benefits in addition you’ll want to consider whether
traditional lifetime or equity release type products may be more appropriate
Rio is not the solution for every customer only some of them a life event typically falls into one of
two categories where the customer chooses to sell their home or acquire a
different home than the early repayment charge may be payable the second group
is where a customer gets into long term residential care or alternatively in
some cases death in both these instances our policy is to waive the earlier
payment charge vulnerability can take many forms age of
itself is not the sole defining characteristic of an ability that can
include job loss disability or other circumstances which the drone can may
need second count off to help intermediaries with this we have useful
tools available website which will guide you through the process of under bility
help you identify where you may need to provide additional support it’s
important that we provide the right framework for a customer to make the
right and informed decision that includes making sure they have a
sufficient time to make the decision to reflect on the actions are taking that’s
important especially in Rio with a nature the contract is a long-term one
given the nature of Rio you may also to consider whether or not
the customer involves family and friends in the decision-making process it will
be appropriate for some albeit not all remember if you do offer this it’s
important to understand whether the person attending may have a beneficial
interest in the equity withdrawal and last but not least it might be worth
discussing the benefits of a lasting power of attorney whilst the benefits of
no immediately apparent is important to remember that the servicing of the
mortgage will include the ability to affect future product transfers and
there may be a point in time where the customer needs somebody to do that on
their behalf the regulator provides clear guidance
lenders on how to assess portability we’re required to look and understand
the income both pre and post retirement and use the lower of the two for joint
borrowers we use the lowest earner we recognize that equity lease mortgages
often have very complex early repayment charges ERC’s we’ve listened to
intermediaries we’ve simplified our approach so you’ll notice that when you
look at RIO mortgages we apply the same fixed percentage of the outstanding
balance and this will be clearly documented for you it’s what you expect
from a traditional mortgage and we’re continuing through on the RIO products
we’re also making special arrangements so that in the event of either death or
the customer leaving their home for long term care
then we’ll waive the earlier payment charge I should expect we continue to invest in
our interests only proposition and for Rio in particular it’s been important
that we support you with well-trained business development managers and
underwriters who fully understand this product and understand the needs of your
customers are also committing to ensuring that you have product transfer
capability available for intermediaries in the future
ready in time for the first majorities when they happen

Paul Whisler

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