Leeds Building Society has launched the first retirement interest-only (RIO) mortgage with cashback which does not include a product fee.
The range of products is designed to enable borrowers to enjoy the retirement of their choice. The society has worked closely with its broker partners and borrowers to gain an understanding of this new evolving sector and claims it is the first to offer five, ten and fifiteen-year fixed rate RIOs with cashback deals.
Leeds BS makes use of enhanced criteria to assess affordability, which allows borrowers to include various financial resources such as income drawdown pensions and self-invested personal pensions (SIPPs).
The new RIO mortgages which offer £500 cashback and no product fee include a 3.94% two-year fixed rate with a discounted rate for the following three years. There are also a 3.99% five-year fixed rate and a 4.24% ten-year fixed rate. Each mortgage is available up to 55% loan-to-value and features a free standard valuation.
A RIO mortgage is a flexible option with no set termination date which can be used to meet a wide range of needs in later life. These may include, for example, carrying out home improvements that have been put on hold; giving children or grandchildren a helping hand on to the property ladder; or supplementing income to support the desired lifestyle in retirement.
How will it work?
The borrower will be required to make monthly payments for the duration of the mortgage, which will consist solely of interest on the total amount borrowed. Leeds will assess the borrower’s ability to do so based on both current and future income in retirement.
The balance will be repaid when the borrower undergoes what is termed a ‘life event’, such as the sale of a property without transferring the loan; moving to another property which becomes the main residence; moving into long-term care; or in the event of death.
In the case of joint borrowers, the balance will be repaid by the surviving or last borrower living in the home who experiences a life event.
A maximum of two borrowers, who must be aged 55-80, can apply for a loan of up to 55% of the value of the property. The mortgage is available solely on an interest-only basis with no maximum term or age at which the mortgage would need to be repaid. A RIO mortgage is also available for the purchase or remortgaging of a property.
As Matt Bartle, Director of Products at Leeds BS comments, the retirement interest-only mortgage is a new product undergoing development since its launch last year, which builds on the experience and expertise the society has gained from interest-only lending. Leeds aims to develop and fine-tune the product as more is learned about the needs of this group of borrowers.
Bartle explains that the society conducted a significant amount of research before offering this type of later-life lending. However, as the market was wholly untested at the time of the launch, Leeds needs to continue to respond to feedback in order to develop the range of products as demand for them grows.
As borrowers with smaller home loans favour cashback, the society is launching fee-free options to give them even more choice.