Family Building Society has launched three retirement interest-only mortgage products, including a flexible RIO that allows customers to make overpayments, underpayments, payment holidays and has a borrow back facility.
Each product has a maximum loan-to-value ratio of 50% and a minimum age at application of 65, is available to new borrowers and has a £999 product fee.
The flexible product is a discounted variable rate for term, currently 3.94% with an early repayment charge in first three years if mortgage is redeemed, being 3%, 2% and 1% of original advance.
Keith Barber (pictured), director of business development at Family Building Society, said: “This fits well with our later life proposition as a whole because we do a lot of interest-only lending to older borrowers. There’s a proportion of people taking interest-only loans who would prefer to take them for a longer period.
“With the flexible product we’re bringing innovation to the RIO space, enabling customers to make the best use of their financial assets tied up in their house for their benefit in retirement and for their families.
“I don’t think there’s been much take-up of RIOs so far but I don’t think there’s been much innovation in RIO products as yet. I think the flexible product we’re offering is quite different from the existing products in the market and may potentially create more demand for RIOs overall.
“And if other companies introduce similar flexible products, it makes RIOs more of a tool for the customer.”
Once underwritten and the total loan amount agreed, the flexibleproduct allows a customer to overpay regularly or by lump sum and later draw on that overpayment without further underwriting, or arrange a payment holiday or reduction using the overpayment that has been previously built up.
Barber added: “This flexibility allows the borrower to use the equity in their property as their, or their families’ needs change through retirement.
“We see that as being the more interesting proposition in the market as I don’t think anyone has done that yet. It makes it a very flexible arrangement for people. You can use it like a current account against the mortgage.
“It’s a product that consumers and advisers can use to create a bespoke solution for someone. ‘Brokers said we need to do something different and flexible so that’s something we’re aiming to deliver.’”
Ray Boulger, senior mortgage technical manager at John Charcol, said: “It’s a good flexible product. I would say this is the second flexible RIO product after Vernom Building Society’s offset RIO it launched a few weeks ago.
“Family have a good design for the product but will struggle to get volume unless it changes its pricing.
“It’s also good that smaller lenders with manual underwriting like Family are in this space because a higher proportion of people taking RIOs out will become vulnerable and need help which these lenders can give.”
Similarly David Hollingworth, associate director of communications at L&C Mortgages, said you’d expect Family as a brand to be involved in the RIO market with its manual underwriting, offering solutions for all generations.
He added: “We’re seeing more flexibility being brought into the market and having more flexibility is something that’s likely to appeal to borrowers.
“It’s an important step because it gives them more control over how they use the product over what’s likely to be a longer-term deal.”
There’s also two lump sum interest-only products, both with a 10% per annum early repayment charge free.
There’s a 5-year fixed rate at 3.69% with a £999 product fee and an early charge for five years of 5%, 4%, 3%, 2% and 1%, as well as a discounted variable rate for term, currently at 3.84% with a £999 product fee and an early repayment charge for three years of 3%, 2%and 1%.
All three products will be available through selected intermediaries who have expertise in later life borrowing as well as through the society’s direct channel.
These new RIOs complement the society’s existing ‘Retirement Lifestyle Booster’, a standard interest-only product which provides a means of taking a regular ‘income’ from your property over a period of up to 10 years, and the society’s repayment mortgages, which are open to borrowers up to age 95.
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