We recently launched our Retirement Interest Only mortgage (RIO) to provide more flexible borrowing options for those in retirement. Our RIO mortgage is designed for those wanting to borrow money against the value of their property. The repayment of the loan is on an interest-only basis and there is no fixed term defining when it has to be repaid. Instead, the loan is repaid when the applicant reaches a major life event such as long-term residential care or when they die.
Helping you identify customers
What do potential customers look like? We’ve provided some hypothetical examples to illustrate the types of customers we think could benefit from the RIO product:
Moving House Later In Life
Jan and Dave are in their early 70s living in a beautiful country cottage. However, they want to move to a house nearer to their local town so that they can walk to the shops and be closer to their family and friends. It would require a small mortgage to cover the costs of the move and for the extra value of the house they were looking to buy.
They both have a good defined benefit pensions which means they have a secure income. Discussions with their local bank have been unsuccessful, and they feel they are struggling to find a lender that would understand their circumstances in detail rather than just looking at their age.
These would be ideal customers for the RIO product. If your client has a solid income and is able to service the repayments, then they can borrow money on an interest-only basis and repay the capital at a much later date.
The RIO mortgage is also suitable for people who need money to make improvements to their home. Kim and Clive are in their late 50’s, both retired and are mortgage free, but they don’t have the money to make alterations to their property. They would like to make some home improvements and build an extension and therefore need to borrow money to make this possible.
A RIO mortgage would enable Kim and Clive to access money tied up in their home and borrow money on an interest-only basis and repay the capital at a much later date.
Alternative Use of Capital
John and Barbara have an interest-only mortgage with a repayment vehicle in place. However, they have decided that when the repayment vehicle pays out they want to use the capital to help their children onto the property ladder and to help their parents move into more suitable accommodation. Their children are struggling to save for a deposit and their parents need more support but live many miles away.
They know that their income could support the monthly payments of a RIO mortgage and that their pension would also enable them to keep comfortably on top of future payments. In conjunction with the repayment vehicle maturing, the RIO mortgage would enable them to pay off the outstanding balance on their existing mortgage as well as to help two generations of their family.
Repay Capital on Interest Only
In some instances, borrowers with an interest-only mortgage may have insufficient capital to pay off the balance at the end of the term. Joy and Kenneth have found this can be an extremely stressful situation, and feel under pressure to move or take a high interest loan to cover the shortfall. But with the RIO mortgage, a forced move for Joy and Kenneth can be averted and it provides the capital required to cover the existing loan. Instead, the loan is repaid when Joy and Kenneth reach a major life event such as long-term residential care or when they die.
Power of Attorney (POA) – The Benefits and RIO
We currently offer two RIO products, one for customers who have a POA and one for those who don’t. The product for customers with a POA in place costs slightly less than the one for those who don’t. So, what are the benefits to your client of a POA?
Unfortunately, it is a fact of life that as we get older we become less capable, physically or mentally, increasing the risk that we are no longer able to do even the simplest tasks. The loss of mental capacity is a growing problem and people are generally unprepared for it as they think it will never happen to them – but a person is diagnosed with dementia in the UK every three minutes (Source: Alzheimer’s Society).
Mental incapacity may lead to inability to manage one’s affairs, no matter how simple or complicated, at which point someone else must take over that responsibility. Having a mortgage is probably the biggest financial commitment any of us will make, no matter what our age. Without appointing a trusted person to start looking after your financial affairs immediately in the event of mental incapacity, you risk losing your home.
General benefits of having a POA in place:
• You can decide now, while you have mental capacity, who manages your finances should you lose capacity in the future
• It’s cheaper to do it now than your loved ones having to make an application to the court*
• It’s legally binding so no-one can ignore it
• It helps your loved ones deal with your affairs more quickly
• It can avoid problems with access to your monies to pay bills, including the mortgage and ensuring such things as repairs to the property can be arranged
• It provides you and your loved ones with peace of mind
• An attorney does not have to live in the UK
* If you do not register a power of attorney before losing mental capacity, relatives have to apply to the Court of Protection to be appointed as a deputy. The process of deputyship however can be a long and expensive affair and potentially result in delays of up to 12 months, which can significantly impact an individual’s affairs. In comparison once an LPA has been registered with the Office of the Public Guardian it can be used immediately, providing instant reassurance to the donor and their relatives, the process to register a power of attorney can take up to 10 weeks.
Specific benefits relating to RIO Mortgage:
As above, the borrower can rest assured that their Attorney will be able to deal directly with Saffron to discuss the mortgage and to ensure that repayments continue for as long as are needed.
In turn it provides Saffron with someone they can contact immediately should any problems arise with the mortgage.
Should the borrower be unable to live in the property anymore e.g. move into long term care, then both they and Saffron know that the Attorney will be able to deal promptly with the sale of the property – which maybe essential to fund the care home costs.
The above does not constitute advice or a recommendation. It is simply a summary of potential benefits of having a POA in place. For more information we suggest your client discusses this with their solicitor. The link below gives a useful overview:
They can also contact the Office of the Public Guardian:
Phone: 0300 456 0300
Textphone: 0115 934 2778