Competition increases in the RIO mortgage market as average rates fall

Older borrowers considering a retirement interest-only (RIO) mortgage will be pleased to see that, in keeping with general mortgage rates, average rates have fallen in the past four months.

Research carried out by Moneyfacts.co.uk has found that average rates on RIO deals have fallen from 3.47% in February 2020 to 3.34% on the 10 June, a drop of 0.13%. It’s not just the average rate that has fallen, but the numbers of products have risen slightly as well, from 74 in February to 79 on 10 June.

When comparing data from last year, it becomes clear that over the past year RIO mortgages have seen a significant increase in competition. For example, in February 2019 there were 38 RIO deals available being offered by 12 providers and with an average rate of 3.50%. A year later during February 2020, the number of deals has increased to 74, a rise in 56 products, while the number of providers offering RIO mortgages also increased to 18, a rise of six.

Despite the negative impact the Coronavirus pandemic has had on the UK economy since March, the RIO market has remained competitive with the number of products increasing and a new provider entering the market during this time.

Already, a number of well-known mortgage lenders offer RIO mortgages, including Nationwide Building Society. Depending on how the provider operates, RIO mortgages can be applied for directly with the lender or through a specialist mortgage broker. Before taking out a RIO mortgage, it is important to understand all the pros and cons of a RIO mortgage, which can be found in our What are retirement interest-only (RIO) mortgages? guide, as well as talking to an independent financial adviser. As Eleanor Williams, finance expert at Moneyfacts.co.uk, explained: “RIO mortgages can be an alternative option to having to sell a home for older borrowers who have a stable, reliable income and are able to meet a lender’s mortgage affordability requirements. Borrowers need to understand that they would need to make monthly repayments for the life of the mortgage. Therefore, those who are considering taking advantage of a RIO mortgage product should consider their next steps carefully however, as lifetime mortgages and equity release products may also be available, and so seeking independent financial advice could be invaluable in ensuring that the right product for a borrower’s particular circumstances is selected.”