With the ever growing equity release market going from strength-to-strength it perhaps comes as no great surprise that Leeds Building Society has launched its retirement interest-only (Rio) mortgage product.
Albeit this is not an equity release product, it is likely to compete in this sector and with it other potential products from competitors will, I suspect, look to follow.
Historically, Halifax’s Retirement Home Plan was a product that filled this niche very well and for many brokers was a sad loss to the market when this productwas removed.
Leeds has obviously seen a place in this sector for a similar type of product where borrower’s needs and lifestyles are changing.
The product is available for borrowers between the ages of 55 and 80 at application. The maximum loan-to-value is 55 per cent; however there is no requirement for a minimum amount of equity thus ensuring it can be a product available nationwide.
Three rates are currently available: a two-year fixed at 3.34 per cent, a three-year fixed at 3.49 per cent and a five-year at 3.74 per cent.
Each has a £999 arrangement fee attached, but does offer a free valuation up to the amount of £999.
Leeds BS stated the product is aimed at those looking for a lifestyle or retirement planning option, those wanting to release, funds but still protect remaining equity and leave an inheritance for loved ones and finally, and those existing interest-only customers unable to repay their balance, but able to maintain payments.
The Rio mortgage is placed in the sector for those borrowers that can demonstrate their ability to afford the amount being borrowed during the loans lifetime through an assessment of income and expenditure. In turn an affordability calculation is still applied by the lender taking into consideration current and future income.
To ensure the product is arranged with best advice in mind, Leeds BS gives a useful three-step guide for advisers to follow.
- Make sure a useful retirement interest-only guidance sheet, with specific regulatory and other relevant points, is covered with the client.
- Once the mortgage is deemed to be the right product for the client, that a decision-in-principle is carried out. A specific term can be chosen when keyed or simply the maximum of 40 years can be requested.
- Ensure the client is happy to go through the illustration together with the specifically tailored supplementary information sheet and then submitting the full application.
As mentioned earlier, lifestyles and needs are changing and the mortgage market must look to continue to evolve to ensure the needs of the later life client can be addressed.
Regulation by the Financial Conduct Authority clearly defines the differences between the Rio type of product to that of a lifetime mortgage, and with the right advice the Leeds BS’s retirement interest-only mortgage can definitely offer the right solution for many borrowers.
Carl Shave is a director at Just Mortgage Brokers