In June 2018, The Tipton launched the UK’s first retirement interest-only mortgage (RIO) – at the time, it was heralded as a massive step forward for the market, and whilst enthusiasm for the product remains significant sales have failed to materialise.
However, do sales tell the full story or has the advent of these products helped to stimulate innovation and raised some important questions in the later life lending market?
That question is probably best answered by considering what have we learnt since the launch of RIO’s.
Well, for one we know that there’s plenty of consumer, government and press related interest in the concept of longer term lending.
Enquiry volumes have been strong and the level of coverage the product receives in both trade and consumer press hasn’t really slowed since launch, the issue – as has been well reported – is the inability of most customers to meet the affordability rules once they’ve stopped working and/or at the death of the first life.
This lack of retirement income doesn’t bode well and signals that a significant number of those customers might well need support with income products and advice on borrowing through later life in the future.
Secondly we know that advising on the right product choice has become much more nuanced. Prior to the arrival of RIO’s the product options were fairly straightforward – take a standard capital and interest (or interest-only if you could find one) mortgage with mandatory payments until stated retirement age or, if your loan to value allowed equity release.
Since then we’ve seen an increase in the number of equity release plans that allow interest payments to be made, standard mortgages that can now be written well beyond a stated retirement age, a raft of new flexible features being applied to almost all existing equity release plans and simultaneously, a lowering of interest rates across the board. Product choice has never been greater.
Product suitability has never been a black or white choice for an adviser, but the increase in flexibility and the overall merging of product features means it’s arguably never been a greyer area either.
In spite of this I’ve noted an increase in manufacturers claiming that product A is better than product B – that worries me.
Only after a detailed discussion around costs, risks, protections and of course future aspirations can anyone truly attempt to define exactly what the right later life lending product might be. That job should be left to the advisers.
Looking forward I can’t see any indication that the pace of change that we’ve seen in the later life lending market over the last three years will slow, that means more product options, more flexibility and greater customer choice will continue to be the driving force of the market.
That’s fantastic news for everyone but also comes with a health warning that encouraging customers to see the right advisers – who can consider all of the available options and either advise across product types or refer to a relevant specialist – and not simply pushing products, should be everyone’s priority.
In summary, we can look at RIO sales and say they’ve been a little disappointing and we might therefore conclude that the product has been a failure, but I’d rather take a more positive view.
The arrival of RIO’s has added a new dimension to the market, it’s forced standard, RIO and equity release manufacturers to respond and ultimately that means customers now have more options.
More choice can never be a bad thing – so long as you see an adviser who is able to consider all of them.
