Retirement interest-only mortgages in the UK

Brendan Burgess

Brendan Burgess

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Many UK lenders offer interest-only mortgages in the UK. They are particularly useful for people who bought a house with an interest-only mortgage and don't have the means to pay it off on maturity.

While the products all differ, many of them defer the repayment of capital until the person dies or goes into a nursing home.

Which has a good guide here

www.which.co.uk

Retirement interest-only mortgages explained - Which?

Find out how to get a mortgage when you're retired, and how retirement interest-only mortgages (RIOs) work.
www.which.co.uk www.which.co.uk

For example, here is the Nationwide Borrowing in Later Life product

Maximum LTV: 50%
Minimum age at application: 55
Maximum age at application:85
Repaid when you die, move into care or sell the property
Early repayments allowed subject to repayment charges which decrease over time from 0.7% to 0%.
Interest rate: From 2.74% for a tracker product according to the FT. (Can't find the rates on the Nationwide website.)

Post Office Money Retirement Link - funded by Bank of Ireland

Minimum property value: €250k + amount of loan e.g. €300k if you are borrowing €50k on a property worth €250k
Max LTV : 30%
Minimum age on application: 50
Maximum age on application 75
Loan must be repaid by age 80
Fixed for 5 years at 2.99% followed by Bank of England base rate (0.75%) + 4% - so 4.75%
 
The lack of repossessions in Ireland probably prevents Irish lenders making these loans.

The kids move into the mother's house after she dies and refuses to move out of "their home". It would cost the banks too much and take too long to get them out.

Brendan
 
Brendan Burgess said:
The lack of repossessions in Ireland probably prevents Irish lenders making these loans.
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I'm sure there are many reasons - any bank that didn't take a bath in losses on these has suffered bad PR - there have been several discussions on shows like Live Line where kids didn't get an inheritance because their parents ended up owing more than they borrowed (i.e they didn't understand the product, or think far enough ahead)

But in top of that, these were subject to CB Loan to income rules until July this year. I'll dig out the change that was made to remove them.
 
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This would be a brilliant way to fund retirement taking equity out of the family home and leaving the kids with nothing. We could spend six months in Thailand annually or go on endless cruises. I quite fancy a month in Australia as well.
 
RedOnion said:
there have been several discussions on shows like Live Line where kids didn't get an inheritance because their parents ended up owing more than they borrowed.
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Wasn't that inevitable given the structure of the loan? ie, no repayment until death and interest accruing on the interest.
 
NoRegretsCoyote said:
Wasn't that inevitable given the structure of the loan? ie, no repayment until death and interest accruing on the interest.
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Of course it was. But that logic doesn't cause outrage for Joe on a radio show! Much better to say a bank ribbed your inheritance. And acted immorally.
 
RedOnion said:
Of course it was. But that logic doesn't cause outrage for Joe on a radio show! Much better to say a bank ribbed your inheritance. And acted immorally.
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In these cases it would be interesting to know how many kids used the parents' drawdown for their own property adventures.

I suspect it's a lot.
 
The change to LTI exemption came about through the CBI's Financial Stability Review 2019: [broken link removed]

"
In June 2019, the Central Bank Commission, following consultation with the Minister for Finance,
decided to exempt lifetime mortgages from the LTI limit.These products do not have a contractual
regular repayment of capital and interest and instead are fully repaid, inclusive of accumulated
interest, at the end of their term when certain life events take place, such as when the property is
no longer the primary residence of the borrower. The affordability of regular repayments, which is
a primary concern of the LTI limit, is not applicable in these cases and is not considered in lenders’
underwriting practices for these products. A more important consideration or risk related to this
product is the potential for negative equity at the time of final settlement. As a result, LTV limits
are still relevant in the case of lifetime mortgages. While issuance of lifetime mortgages is
currently very limited, this will continue to be monitored by the Central Bank as part of the
ongoing monitoring of mortgage markets."
 
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