"Brokers and customers alike were slow on the uptake, and many didn’t see the attraction as an alternative to equity release."
Five years after retirement interest-only mortgages launched the UK, Hodge looks at how the product has evolved.
Thursday June 8th marks the fifth birthday of Hodge’s retirement interest-only mortgage, one of the first to market.
When it originally launched in 2018:
• The maximum loan size offered was £500,000 – this has now increased to £1.5 million,
• The maximum LTV was 60% - this has now increased to 75%,
• The minimum age at application has dropped from 55 to 50,
• Valuations were free up to £380,000 - now they are free up to £1 million,
• Death stress was from 75 years of age - it is now 82,
• It was originally only approved for a main residence but will now be considered for a second home.
Hodge says it has also seen a 850% increase in the number of RIO applications since its inception in 2018, with the number of applications rising steadily year-on-year.
Emma Graham, business development director at Hodge, said: “RIO mortgages have had a fair amount of criticism since they were introduced to the market five years ago. Brokers and customers alike were slow on the uptake, and many didn’t see the attraction as an alternative to equity release.
“But at Hodge we’ve remained passionate about the RIO, seeing the product as a great stepping stone for those customers who might not be ready or might not be comfortable to go down the equity release route.
“Initial uptake was inevitably impacted by a lack of knowledge and understanding of the value the product can offer to the right customer. So, we’ve worked tirelessly to educate and support brokers about the alternative affordability based financial solutions that are available for customers from the age of 50.
“We’ve listened carefully to intermediary feedback and continued to enhance the proposition, widening parameters to meet more customer needs and, five years on, RIO is now a stable product in our mortgage portfolio.
“Our intermediary partners tell us it’s a great product to help their customers do all sorts of things, from debt consolidation to home improvements and gifting to family. But by far the most popular reasons for taking out a RIO mortgage, according to our data, is to purchase another property or pay off any maturing interest-only mortgages in later life.
“So, it’s great we offer a product that can help people at this time of need, allowing them to keep their home and make affordable interest only payments into retirement.”
