retirement interest only mortgages or RIO provides an important bridge between
a traditional mortgage and that of lifetime or equity release type
mortgages consumer demographics are changing as are their attitudes to
retirement pension reform provides options for customers in retirement and
the customers tell us they want similar options for mortgages RIO provides that
our solution for some customers it's importantly provides a traditional
type of mortgage but beyond the point of retirement
RIO is very different lifetime equity release type lending it's not a
replacement it's another option for consumers it's subject to affordability
because the customer needs to be able to continue to service the loan throughout
their retirement and that's really important on equity release that
requirement isn't there because often the interest will roll up within the
mortgage
RIO is best suited to elder borrowers there are two particular audiences he'll
find it beneficial to their circumstances but will rely on the
advice of intermediaries to help them one group are those with an
interest-only mortgage already they're likely approached in the end of the term
and there's probably a balanced in outstanding in which case RIO provides a
solution whereby they can carry on paying their mortgage beyond the point
of retirement the second audience are those who are
looking to lease equity from their home but have sufficient affordability that
they can afford to service that debt they can make the monthly payments and
therefore it provides additional options for them
we expect a number of lenders to release RIO products over the coming months the
regulator's provided guidance that's really helpful but there will be small
differences between different product providers so it's important that
intermedius understand the differences in the products available in developing
our proposition we had four key considerations one safeguarding your
customers to making the protis easy and straightforward for you as the
intermediary 3 ensuring the right support was available through investment
in our business development occurs and our underwriters and finally for RIO is
a long-term commitment it's a product which will run for a number of years as
such it's important that lenders provide the tools for intermediaries to continue
to support their customers for this reason we're committing to providing
product transfers through intermediaries for RIO mortgages
the nature of RIO is that is a long-term commitment so it's important that
intermediaries to give you a holistic view of the customer situation does
their mortgage and their broader finances to help you make the right
decisions we're here support you through that process and we're committed to
providing a product transfer solution ready for when the first RIO deals
as you'd expect intermediaries will have access to our business develop managers
that's business as usual for us and they're here to help in addition to that
we've provided a guide to RIO it's there to help stir you through the challenges
of working through a RIO case it'll take time to the brokers to get used to these
products and that's why the guides available there will be circumstances
where you'll want to refer for additional advice expertise and that
could be weather implications on taxation or on benefits in addition
you'll want to consider whether traditional lifetime or equity release
type products may be more appropriate Rio is not the solution for every
customer only some of them
a life event typically falls into one of two categories where the customer
chooses to sell their home or acquire a different home than the early repayment
charge may be payable the second group is where a customer gets into long term
residential care or alternatively in some cases death in both these instances
our policy is to waive the earlier payment charge
vulnerability can take many forms age of itself is not the sole defining
characteristic of an ability that can include job loss disability or other
circumstances which the drone can may need second count off to help
intermediaries with this we have useful tools available website which will guide
you through the process of under bility help you identify where you may need to
provide additional support it's important that we provide the right
framework for a customer to make the right and informed decision that
includes making sure they have a sufficient time to make the decision to
reflect on the actions are taking that's important especially in Rio with a
nature the contract is a long-term one given the nature of Rio
you may also to consider whether or not the customer involves family and friends
in the decision-making process it will be appropriate for some albeit not all
remember if you do offer this it's important to understand whether the
person attending may have a beneficial interest in the equity withdrawal and
last but not least it might be worth discussing the benefits of a lasting
power of attorney whilst the benefits of no immediately apparent is important to
remember that the servicing of the mortgage will include the ability to
affect future product transfers and there may be a point in time where the
customer needs somebody to do that on their behalf
the regulator provides clear guidance lenders on how to assess portability
we're required to look and understand the income both pre and post retirement
and use the lower of the two for joint borrowers we use the lowest earner
we recognize that equity lease mortgages often have very complex early repayment
charges ERC's we've listened to intermediaries we've simplified our
approach so you'll notice that when you look at RIO mortgages we apply the same
fixed percentage of the outstanding balance and this will be clearly
documented for you it's what you expect from a traditional mortgage and we're
continuing through on the RIO products we're also making special arrangements
so that in the event of either death or the customer leaving their home for long
term care then we'll waive the earlier payment
charge
I should expect we continue to invest in our interests only proposition and for
Rio in particular it's been important that we support you with well-trained
business development managers and underwriters who fully understand this
product and understand the needs of your customers are also committing to
ensuring that you have product transfer capability available for intermediaries
in the future ready in time for the first majorities
when they happen
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