What you need to know about retirement interest only mortgages

Monday, 23rd July, 2018

For those who read my last article on interest only mortgages, then you’ll know that the interest only mortgage is, to a degree, back in vogue.

However, there is another interest-related mortgage that’s becoming a popular choice amongst a certain demographic, and that’s the interest only retirement mortgage.

What is it?

The retirement interest-only mortgage – or RIO mortgage – is similar to a standard interest-only mortgage in as much as it enables the homeowner to pay off the interest accrued on the home loan on a monthly basis. However, unlike standard interest only mortgages, there is no end date set by the lender.

How is the mortgage balance paid, then?

The key word here is ‘retirement’, and this essentially means that the balance is paid with the equity locked within the property when either the retiree dies, sells the property or moves into care.

Whilst the lack of an end date may sound counter-intuitive – and maybe even illogical – the Financial Conduct Authority is keen for more RIO mortgage loans to be issued in order to counteract the number of people who currently have an interest-only mortgage agreement in place without the means of paying it back when the end date arrives.

Why has the retirement interest only mortgage been launched?

It has been created to provide more routes to borrowing by older homeowners against the backdrop of an ageing population.

A recent ONS report* highlighted how retirees currently account for 18% of the UK’s population, which currently stands at 65.6 million and is expected to rise to 74 million by 2039. This would mean that there would be a staggering 13,320,000 retirees in the UK in just over two decades.

Who can apply for a retirement interest only mortgage?

Those aged 55 and over whose retirement income can support the payments.

I’m interested in finding out more. What shall I do now?

If you currently have a standard interest only mortgage that’s nearing its end date – or even if you’re on a standard repayment mortgage but are interested in switching to an RIO mortgage, then contact the team at Complete Mortgages on 01483 238280 or email info@complete-mortgages.co.uk.

Remember, we also specialise in buy to let mortgages, commercial mortgages, adverse credit mortgages and limited company buy to let mortgages, too.

*https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017

By Mark Finnegan, Director at Complete Mortgages


Are interest only mortgages good or bad?

Tuesday, 3rd July, 2018

Interest-only mortgages are a bit like life. They’re not simply all bad or all good, they’re not clear-cut and they’re often right for some people, but not others.

However, from recent reports that suggest that the interest only mortgage is making its comeback, you could be forgiven for thinking that UK homeowners are about to revert to the pre-crash days and readopt the interest-only approach to home ownership.

In fact it wasn’t that long ago that interest only mortgages were commonplace.

It was only the financial crisis of 07/08 that provided what is now seen as a much-needed reset. Up until that point, people were applying for a mortgage on the strength of what they said they could afford as opposed to what they really could afford.

What made this palatable was that house price growth created a safety net as interest-only homeowners were banking on significant equity growth to pay down their mortgage when the time came. However, given the slowdown in property growth over recent years, this is less of a dead cert.

So what’s the difference this time, then?

Well, first of all a little context is needed. Data recently published by Moneyfacts, the financial analyst and comparison site, has revealed that 33 lenders now offer interest only mortgages – up from only 12 offering the product in summer 2013.

However, as stated by a Moneyfacts finance expert in a recent interview with industry title Mortgage Strategy, there were 73 lenders offering interest only mortgages back in June 2008, which reveals we have a long way to go before we reach those levels.

Furthermore, unlike days of old, to apply for an interest only mortgage today you have to have a low loan to value ratio – something that rarely got in the way of a deal pre-crash and certainly before the introduction of the Mortgage Market Review, which resulted in a severe tightening up of the mortgage market after it was put in place.

Yes, interest only mortgages seem to be gaining ground once again – however this type of interest only mortgage seems reserved for those who aren’t banking solely on property growth to pay for their mortgage decades down the line, as you will need to have a repayment strategy in place at the outset that is acceptable to the lender. Evidence also suggests that in addition to a large deposit, those looking to get an interest only mortgage will also need to earn a large salary.

Back to the original question, then: are interest only mortgages good or bad?

As a Guildford mortgage broker that has witnessed the ups and downs of the mortgage market both pre and post-crash, I’ll say that it completely depends on the individual’s circumstances. And for that reason, we would always advise that anyone thinking of applying for a mortgage – of any kind – appoints the best mortgage brokerage they can to help guide them through that process and provide that peace of mind.

If you’re considering applying for an interest only mortgage contact a member of the Complete Mortgages team on 01483 238280 or email info@complete-mortgages.co.uk. Remember, we also specialise in buy to let mortgages, commercial mortgages, adverse credit mortgages and limited company buy to let mortgages, too.

By Mark Finnegan, Director at Complete Mortgages


Why the sudden interest in interest only mortgages?

Friday, 23rd February, 2018
interest only mortgages

First it was the interest rate rise. Now it’s the interest only mortgage. So, what’s with the sudden interest in all things interest-related?

Well, an interest rate increase is always enough to create debate (and keep an eye out for more articles from us on this topic as we watch – with interest – to see whether another interest rate rise happens in spring), however the debate around interest-only mortgages is a reoccurring one.

It wasn’t until the financial crash of 2007/8 that interest rates found themselves under scrutiny. Up until that point it was assumed that property prices – and therefore equity – was going to continue growing, leaving the homeowner with a pot of gold when they sold their property.

Now, with property prices beginning to slow, it would seem that the opportunity to make money on property like days of old is no longer a sure thing and this has the potential to leave homeowners exposed. On that basis, it’s no doubt one of the reasons why the Financial Conduct Authority has brought the interest-only mortgage back into focus.

According to Which?, new research has revealed that there are three points over the next decade-and-a-half whereby a large number of the UK’s interest-only mortgages will reach maturity, with more recent borrowers most at risk of a shortfall.

If you are currently on an interest only mortgage deal and concerned by the recent media coverage surrounding them, then our advice would be to contact a good mortgage adviser, who will be able to go through the pros and cons of interest only deals in relation to your own circumstances. However, for now, here are a few things you will need to consider.

1. Place your head in the future – not the sand

Will you be able to repay your mortgage at the point of maturation based on your current circumstances and income? If the answer’s ‘no’, then maybe it’s time to switch to a repayment mortgage. There really is little point in ignoring the issue or putting it off until tomorrow. Besides, the sooner you address it the sooner you can apply for a repayment mortgage or remortgage.

2. Seek mortgage advice

As a Guildford mortgage broker, helping people to establish the right mortgage for them is what we do well. And given how it’s our job, we know the mortgage landscape inside out as well as the best alternatives to interest only mortgages currently available.

3. Equity release mortgages may be an option

Even if you’ve come to the conclusion that you’ve gone too far and for too long on an interest only mortgage to be able to pay the balance, there are still options. Applying for an equity release mortgage is one of those – and one that may mean you don’t have to compromise your current standard of living. As an equity release mortgage specialist Complete Mortgages can guide you through this process.

Regardless of mortgage type, we always recommend that you speak with a reputable and trusted mortgage adviser – even if it’s not us. By doing so, you will be able to shortcut the process, save time and energy on researching the market and get professional guidance and advice when it comes to making a decision that’s right for you.

If you’d like to discuss your options when it comes to switching from an interest only mortgage to a repayment mortgage, contact Complete Mortgages on 01483 238280 or email info@complete-mortgages.co.uk.

By Mark Finnegan, Director at Complete Mortgages