Scottish BS launches retirement interest-only mortgage

Scottish BS launches retirement interest-only mortgage

Scottish Building Society has introduced a retirement interest-only mortgage to its product range for older borrowers.

The product will be available to homeowners in Scotland aged 60 and above with a regular and "reliable" monthly income in retirement, with no maximum age limit.

The society is offering up to 50 per cent of the property value as a cash lump sum, with interest only charged on the loan and no set end date for settlement - the capital will be repaid after death or on the sale of the property.

In March 2018, the Financial Conduct Authority reviewed its approach to later life lending removing a regulatory barrier to allow retirement interest-only mortgages.

The regulator now recognises retirement interest-only products as standard mortgages rather than assessing them under more stringent equity release standards.

Paul Alexander, head of business development at Scottish Building Society, said the move by the FCA to widen access to affordable borrowing for older people presented an opportunity for intermediaries who previously missed out on this growing market, if they were not qualified to provide advice on equity release products.

He said: "Now all advisers can handle this business and can take comfort from the fact that we are already specialists in interest-only later life lending with many years of experience under our belt."

Mr Alexander said the society is expecting high demand for the retirement interest-only product, especially when older people become aware of the benefits.

He added: "Where the applicants have a secure income and meet our affordability criteria, a retirement interest-only mortgage may be a more suitable option than equity release.

"It provides an alternative to a house sale or expensive loan repayments and is good news for those nearing the end of a standard interest only mortgage who have a shortfall in savings to repay the loan."

Mr Alexander said the product also provided an option for managing inter-generational wealth, with older people potentially helping younger members of the family buy their first home and possibly acting as an effective tool for reducing any inheritance tax burden.

Scottish Building Society has offered an interest-only lifetime mortgage for more than a decade, which allows borrowers to unlock cash tied up in homes whilst only paying interest on the loan.

On the latest retirement interest-only addition, Aaron Frizzel, compliance and quality director at Mortgage Advice Bureau Edinburgh, said: "The interest only over 60s product launch by Scottish Building Society is a bold and forward thinking approach to an ever increasing challenge, that challenge being more mature borrowers having a genuine shortage of useable mortgage solutions.

"Since the downturn, the maximum permitted age at the end of the mortgage term was arguably too restrictive, given the average age of existing borrowers, applicants working later in life and a desire to stay in the family home and not being forced to downsize to settle balances due, or access funds tied up in the form of equity."