"They must be capable of reaching a wider audience, and that rests on how easily applicants pass affordability tests."
The number of retirement interest-only mortgages sold in 2022 was significantly below expectations made by the FCA, new research from Responsible Life shows.
Sales of retirement interest-only mortgages were up by almost a quarter in 2022, but they still only accounted for 1 in every 409 mortgage products sold last year.
The number of RIO mortgages sold in 2022 rose 23.4% to 3,158 — up from 2,558 in 2021 — according to FCA data obtained through an FOI request. However, this only represents 0.24% of the 1,290,082 mortgage products sold during 2022.
When RIO mortgages were launched in March 2018, the FCA forecast that around 21,000 would be approved annually from 2021/22.
Even total sales haven’t reached 10,000 - less than half the annual target predicted by the FCA. In total, only 5,785 RIO mortgages had been sold by the end of 2021, rising to 8,943 by the end of 2022, according to the FCA.
In their current form, Responsible Life believes RIO mortgages will never become a mainstream financial tool for retired homeowners, despite there being huge demand for them.
According to latest UK Finance data, there were still 754,000 pure interest-only mortgages outstanding at the end of 2021.
RIO mortgages were designed to remove age as a barrier to remortgaging for borrowers who cannot repay their traditional interest-only mortgages when they hit retirement. They were made possible by a relaxing of affordability tests by the FCA, and these changes meant that borrowers no longer needed to demonstrate that they had a long-term repayment plan, they just have to show they can afford the monthly payments.
Steve Wilkie, executive chairman of Responsible Life, said: “Hundreds of thousands of people face hitting retirement with conventional interest-only mortgages they cannot repay and retirement interest-only mortgages could be a useful product. But they must be capable of reaching a wider audience, and that rests on how easily applicants pass affordability tests.
“The sole survivor rule is one key area that could be overhauled, because it means that each individual borrower must show they can afford the monthly payments on their own. An easy way around this rule would be to allow borrowers to plan for the sale of their home as a repayment vehicle, or convert their retirement interest-only mortgage into a lifetime mortgage when it makes financial sense.”
