Daily Express

In­ter­est rises in new op­tion for older bor­row­ers

- By Har­vey Jones

OLDER home­own­ers strug­gling to pay off their mort­gage now have an­other way of ser­vic­ing their debt, as the num­ber of re­tire­ment in­ter­est-only mort­gages (RIOs) rises sharply.

Af­ter a slow start, RIO prod­uct num­bers have dou­bled in the last year, of­fer­ing wider choice and lower rates to strug­gling bor­row­ers.

They are de­signed to help older bor­row­ers who can­not ex­tend their ex­ist­ing mort­gage, be­cause lenders are re­luc­tant to of­fer deals run­ning be­yond age 70.

By con­trast, there is no age limit on a RIO. Home­own­ers can con­tinue to make monthly in­ter­est pay­ments un­til they die or go into long-term care, at which point the prop­erty is sold to pay off any out­stand­ing cap­i­tal, with the sur­plus fall­ing into the fam­ily es­tate.

Mon­ey­facts.co.uk fi­nance ex­pert Eleanor Wil­liams said RIOs could be a life­line for many older, re­tired home­own­ers.

Its fig­ures show prod­uct num­bers have dou­bled in the last 12 months, with 18 dif­fer­ent lenders of­fer­ing 74 prod­ucts in to­tal, while the av­er­age in­ter­est rate fell slightly to 3.47 per cent.

An­drew Mor­ris, se­nior eq­uity re­lease ad­viser at over-50s spe­cial­ist Age Part­ner­ship, wel­comed the in­creased choice for those with later life money prob­lems: “RIOs should have an in­creas­ing role to play, as plans de­velop and more providers of­fer prod­ucts.”

Eq­uity re­lease schemes are an al­ter­na­tive for cash-strapped older home­own­ers, and Mor­ris said take in­de­pen­dent fi­nan­cial ad­vice to work out which is bet­ter for you. “RIOs can help home­own­ers re­lease larger lump sums, es­pe­cially at younger ages,” he said.

RIOs also give bor­row­ers the con­fi­dence that their debt will not rise, but only if they can af­ford to main­tain pay­ments.

He added: “Also look at other ways of gen­er­at­ing ex­tra cash in re­tire­ment, such as mak­ing sure you claim all your state ben­e­fits, or down­siz­ing to a smaller home.”

Mark Fin­negan, di­rec­tor at bro­ker Com­plete Mort­gages, said lenders im­pose strict af­ford­abil­ity checks on RIOs to en­sure re­tired own­ers can af­ford to ser­vice mort­gage in­ter­est, and most fail to qual­ify.

“Many go for eq­uity re­lease in­stead, as this is more straight­for­ward to se­cure and does not re­quire any af­ford­abil­ity checks,” he said.

Typ­i­cally, you do not have to make in­ter­est re­pay­ments on most eq­uity re­lease deals. In­stead, the in­ter­est rolls up and is re­paid when you die or go into care.

“Many eq­uity re­lease plans al­low bor­row­ers to make op­tional in­ter­est pay­ments to keep the debt down,” Fin­negan added.

Matt Bur­ton, manag­ing di­rec­tor of mort­gages at spe­cial­ist lender Hodge, said al­though not suit­able for ev­ery­one, RIOs can work for those who have enough in­come to ser­vice their in­ter­est pay­ments,” he said. “Read up and un­der­stand the dif­fer­ent prod­ucts so that you are well in­formed be­fore mak­ing a de­ci­sion.”

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