The Family Building Society has entered the retirement interest-only mortgage market.
Rios — which were facilitated by an FCA rule change last year — allow borrowers to free up equity in their house with monthly interest payments.
They work like standard interest-only mortgages, where the consumer only pays monthly payments on the interest, and the loan is only repaid when the property is sold, the borrower moves into residential care or dies or at the end of the term.
Family has introduced three Rios to its range with a maximum loan-to-value ratios of 50 per cent and a minimum age at application of 65.
Consumers with a 50 per cent deposit can get a five-year fixed rate at 3.69 per cent. The early repayment charge for five years is at 5 per cent but decreases each year to 1 per cent, with 10 per cent per year ERC year.
Also available at 50 per cent LTV is a discounted variable rate for term policy, currently at 3.84 per cent, which also comes with a decreasing ERC down from 3 per cent at three years.
Both products are lump-sum payouts with a £999 product fee.
Family are also offering a flexible Rio, also at 50 per cent LTV, currently available at 3.94 per cent with a £999 product fee.
Flexible features within the policy include overpayments and underpayments, payment holidays and a borrow back facility.
Once underwritten and the total loan amount agreed, the flexible Rio means customers can overpay regularly or by lump sum and later draw on that overpayment — “borrow back” — without further underwriting.
The overpayment can also be used to give a “payment holiday” — a break from payments for the borrower — or a reduced fee.
The new policies are available through selected brokers who have expertise in later life borrowing, as well as directly from the society.
Keith Barber, business development director at Family Building Society, said: "These new Rios complement our existing Retirement Lifestyle Booster, a standard interest-only product which provides a means of taking a regular ‘income’ from a property over a period of up to 10 years and our repayment mortgages, which are open to borrowers up to age 95."
Will Hale, chief executive of Key, said: “Family is a welcome addition to the retirement interest-only market as they bring more choice and innovation to a sector with significant potential.
“The choice to limit distribution to a handful of specialists demonstrates a growing acknowledgment in the market that these products fit within the group of later life lending and should be considered along with equity release and other later life mortgages – whether that is done through holistic advice with a single adviser or through an established referral relationship.
“Family Building Society regularly introduces interesting new solutions and features and these Rio products are no different.”
Despite this, Mr Hale added that affordability challenges around Rios remained a very real barrier for some potential borrowers and said the prospect of remortgaging aged in your late 70s could act as a deterrent for some.
“Our experience suggests that these products fit well for customers whose age and LTV requirements mean that they don’t yet qualify for equity release and therefore represent perhaps an interim step on a journey from a mainstream mortgages into equity release.”
imogen.tew@ft.com
