Rise in retirement interest-only mortgages

There are now 38 retirement interest-only mortgages (RIOs) on the market, up from only five available six months ago in July 2018, according to the latest Moneyfactscompare.co.uk research.

The Financial Conduct Authority (FCA) reclassified RIOs in March 2018 from being a form of equity release to a standard mortgage, and despite a slow start, the mortgages have started to become more popular with providers, with 12 now offering these types of mortgages (up from two in July 2018).

RIOs allow those who haven't paid off their mortgage upon retirement to pay monthly interest on their mortgage until they die or go into long-term care, at which point, the mortgaged property is subsequently sold as a means to repay the loan.

Darren Cook, finance expert at Moneyfactscompare.co.uk, said: "The reclassification of RIO products from under the equity release umbrella in March 2018 must have been a welcome relief for those borrowers who may have reached the end of their interest-only mortgage at an older age and would have had few options open to them.

"Despite our research showing that building societies have been nearly the only driver of the RIO market since its inception, with only three of the 38 total products being offered by a non-mutual, it seems that the older borrower market is also benefiting from banks and building societies scaling back their criteria on interest-only mortgages, as well as extending the maximum age at end of their non-RIO mortgages beyond 80 years of age.

"Last month, Moneyfactscompare.co.uk reported that the number of mortgages permitted to end when borrowers are aged between 80 and 84-years-old has increased dramatically in recent years, rising from zero in 2014 to 1,078 products.

"Even though non-RIO mortgages with extended age terms do not exactly fit the Financial Conduct Authority's RIO definition, it seems mortgages providers that don't offer RIOs are still relaxing their lending criteria on maximum age in line with the spirit of what the FCA is trying to achieve."