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The Rise of Retirement Interest-Only Mortgages
Reaching retirement used to indicate a time to sit back and enjoy a quieter life, safe in the knowledge your mortgage had been paid off. This is no longer a reality for many homeowners who are finding that despite their working life coming to an end; their mortgage isn’t. Many lenders have already adapted their policies to cater for the growing population of later life borrowers, but as the retirement age and life expectancy both continue to rise, the needs of these borrowers look set to grow even further. We expect demand to grow not just for equity release products but also for more traditional mortgage products that lenders are able to advance to customers beyond their retirement age. More consumers are reaching their 60’s without the savings they need to have the retirement they want. The thousands of interest-only borrowers approaching retirement age without a plan to pay off their loan means that borrowing into retirement is a reality for many people.
With changing trends in home buying seeing people going through the home buying cycle later in life than a few decades ago, the retirement lending market is embarking on a period of unprecedented growth. This is predicted to expand drastically in the next 10 years according to the Centre of Business and Economics Research. Up until the last decade or so, equity release was the only option for those aged 65 or over who were looking to utilise their property to fund their retirement.
In March this year, the FCA reclassified Retirement Interest-Only (RIO) loans as standard mortgages rather than lifetime mortgages or equity release. RIO mortgages allow consumers to keep paying monthly interest payments until they die or go into long-term care. The lender then gets the rest of their loan paid back through the sale of the property.