In June 2018 the Tipton was one of the first building societies to offer retirement interest-only mortgages (RIO) throughout England and Wales. The launch of our RIO mortgage range coupled with a flexible approach to the upper age limit for standard lending was another step in developing a lifecycle of mortgage products aimed at building a long-term relationship with our members.

At the same time it was a reflection of our commitment to the growing later life market where the Tipton remains committed to supporting those who are approaching retirement or are already retired.

The Tipton’s RIO mortgage now has a range of options that includes support for consumers who are stuck with expiring term mortgages with no method of repayment. It can assist customers over the age of 55 who wish to remortgage, release funds using the equity or borrow on specific property types like retirement homes.

Market performance

There have been conflicting views as to how well RIO sales have been performing across lenders since this type of lending was launched. In November last year, it was reported that mortgage lenders had completed just 660 retirement interest-only mortgages since their launch (these figures were revealed after This is Money sent a Freedom of Information request to the Financial Conduct Authority).

I have found such reports somewhat surprising, as the feedback we’ve had towards RIOs from brokers has been positive. Indeed, we had a really good year at the Tipton in terms of RIO sales and were well ahead of our target for 2019 in terms of completions.

Throughout the year our BDM team received a solid stream of enquiries from brokers as demand for RIOs continued to grow. What’s more as new lenders such as the Nationwide entered the RIO market, and others such as Leeds Building Society and Hodge enhanced their RIO offering, awareness and familiarity of RIOs grew. We will undoubtedly see more RIO products and enhancements in 2020, which will only go to help to increase awareness and fuel sales.

Innovation

The RIO market remains in the early stages of its development and still has a long way to go to reach its full potential. To be successful lenders will need to continue to innovate, enhance and develop products that meet the changing needs of an ageing population, and upskill the market on RIO loans.

We all know that potential borrowers are faced with an array of choices when it comes to later life lending. So it’s crucial they know that RIO products exist in the market, what they do and how they differentiate from other forms of later life lending.

The Tipton response

Our RIO products offer older borrowers an interest-only monthly payment until the borrower dies, moves into permanent long-term care, or sells the property, at which point the mortgage is repaid.

Borrowers can use the sale of their home as their repayment strategy provided they have a minimum of 40% equity in their property. And if they wish to gift some equity to a family member, enjoy some holidays or give their home a face-lift with some home improvements, then up to 25% of the property value can be released for these purposes.

The Tipton RIO is for both purchase and remortgage and is available to borrowers aged 55 and over who can meet the affordability assessments by demonstrating sustainable income in retirement.

The society offers a range of both fixed and discounted products, where product fees apply and up to 10% overpayments are allowed each year without charge. The maximum loan-to-value (LTV) is 60% with mortgages available up to £1million. And for remortgages, £150 cash back is given to the borrower to assist with their legal fees while standard valuation on properties up to £400k is free of charge.

Reaching full potential

The RIO market has significant potential to grow over the coming years as demand for a later life solution for customers intensifies. But to be successful lenders will need to innovate and adapt their offering.

At the same time, there is clearly a need for more advisors equipped to effectively explain why a RIO may be best suited to meet a customer’s particular needs and circumstances.

Later life borrowing is clearly growing at a fast pace. As part of this the RIO market is well positioned to become a mainstay for later life lending as more entrants offer RIOs and lenders continue to educate and innovate to meet the needs of a changing and ageing population in later life.