Retirement interest-only mortgages made up just 0.14 per cent of purchase and remortgage mortgages sold in the year to June 2020, reports Responsible Life.

According to a freedom of information request filed by the later life lender, of the 1,207,381 mortgages recorded by the Bank of England in the year to June, only 1,631 were retirement interest-only mortgages.

This, says Responsible Life, means that the product is an “outright failure” in the face of the 1.02 million interest-only mortgages worth £172bn outstanding at the end of 2019, the borrowers of which retirement interest-only mortgages were designed to serve.

The lender blames lower take up than expected on current criteria rules, whereby affordability is calculated on the lower guaranteed income of a surviving spouse.

Responsible Life says that there are two ways to improve accessibility of these mortgages.

The first would be to recognise the possibility of repaying the mortgage with a lifetime mortgage when an “appropriate” LTV and age is reached and/or if the primary income provider should die first.

The second would be to treat the sale of the property as an acceptable repayment plan by all lenders.

Responsible Life executive chairman Steve Wilkie says: “Retirement interest-only mortgages are an outright failure. They should be scrapped in their current form and redesigned around customers in retirement, instead of bolted on to mortgage rules designed for those in full-time employment.

“Many retirees consider themselves wealthy enough to continue living in their home but can’t remortgage because sole survivor rules are too restrictive, and not enough flexibility is afforded to those who plan to downsize in the future but wish to stay in their family home for a limited period.

“The innovation that retirement interest-only mortgages represented when they came to market was well meant but too few people are able to access them.

“The low take up of retirement interest-only mortgages tells you all you need to know about how desperately this product needs to be taken apart and put back together again. The lack of flexibility and accessibility in the later life lending arena is increasing financial anxiety for consumers and it is entirely avoidable.

“The most obvious ways to improve accessibility is to allow borrowers to plan for the sale of their home as a repayment vehicle or convert their loans into lifetime mortgages when it makes financial sense to do so.”

The Tipton head of mortgage sales Richard Groom says: “The numbers quoted fall far below the expectations of the product when retirement interest-only mortgages were introduced into the market in 2018.

“Whilst we have had some success and enjoy a higher market share than originally anticipated for our size, it is accepted that it’s the current regulatory requirements for all lenders to access affordability against the lowest earning borrowers sole income that continues to limit take up as it significantly reduces the number of borrowers who can access this product.”