Have retirement interest-only mortgages flopped? Just 80 people a month take one out, despite claims they will be ground-breaking
- Just 241 retirement interest-only mortgages were taken between January and March this year, our exclusive figures reveal
- That follows 112 retirement interest-only mortgages sold in the whole of 2018
- This falls far short of the 21,000 per year predicted for 2021 by the watchdog
- Experts worry that a commission bias is pushing customers to equity release
Retirement interest-only mortgages were supposed to help thousands of older homeowners remortgage to clear debts or fund their pension years, but This is Money can reveal just 241 were sold in the first quarter of the year.
The financial industry is pinning great hopes on retirement interest-only mortgages helping borrowers who retire with home loans or other debts outstanding, however, customers seem less keen.
Official figures obtained from the Financial Conduct Authority via a Freedom of Information Act request showed the number of retirement interest-only mortgages taken in the first three months of 2019 was higher than in the last quarter of 2018, but barely.
The FCA predicted 21,000 retirement interest-only mortgages would be sold annually by 2021
In March, we reported that just 112 retirement interest-only mortgages were successfully completed across the whole of the UK last year.
The tiny completion numbers come despite official estimates suggesting there are tens of thousands of pensioners with no plan for how to repay their existing interest-only mortgages.
It also follows a co-ordinated effort by the financial regulator and mortgage lenders to make it possible to remortgage interest-only loans after retirement.
In March last year, the FCA relaxed its mortgage lending rules because it was worried about the number of older borrowers who took interest-only mortgages before the credit crisis and now have no way of repaying them without selling their property.
At the time, the regulator predicted that by 2021 around 21,000 retirement interest-only mortgages would be sold annually to help these older homeowners, representing around £1.7billion in sales.
As of April 2019, just 353 have been sold in total since the product’s inception in March last year.
Nationwide became the first large lender to offer the product in April this year, prompting many to hope that more people would take a retirement interest-only loan, however, currently its deals are still available only to existing Nationwide members.
Meanwhile, the latest figures from trade body the Equity Release Council show some 20,866 new equity release customers were served in the second quarter of the year.
What is retirement interest-only?
A retirement interest-only mortgage is like a standard interest-only remortgage that can be taken into retirement, and which can be paid back once the home is sold, the homeowner dies or goes into full-time care.
They’re generally only available to over-55s, but unlike some equity release products the interest is paid off monthly, so it doesn’t roll up and eat into the equity the homeowner already holds.
When applying, homeowners don’t have to prove they have a credible repayment plan in place, as they would with traditional interest-only mortgages, instead they only have to prove they can keep up with the monthly repayments.
Crucially homeowners can switch onto these deals from existing interest-only mortgages that could be near the end of their terms without a plan in place to pay off the loan.
This is over 59 times the number of retirement interest-only mortgages sold in the entire time they’ve been available.
Though the two products are similar and aimed at the same demographic, they’re sold differently.
Mortgage brokers and equity release advisers both earn commission from lenders when they successfully complete a mortgage application for a client.
Mortgage brokers get paid somewhere in the region of 0.35 and 0.5 per cent of the mortgage amount when completing a retirement interest-only mortgage.
On a £100,000 home loan they’d receive £350 to £500.
Equity release brokers are also paid commission, but they get 3.5 per cent of the loan amount. On a £100,000 loan that is £3,500.
The basic principle behind giving mortgage advice is to help the customer get the best solution to their problem.
But, the adviser has to have the correct qualification and permission from the regulator to tell clients if that’s either a retirement interest-only mortgage or a lifetime mortgage, equity release in other words.
Generally speaking mortgage brokers are not qualified to advise on equity release so they refer them to retirement specialists.
It’s therefore equity release advisers who are in the best position to tell customers whether to take a lifetime mortgage or a retirement interest-only mortgage – but they aren’t financially incentivised to do so.
Interest-only Mortgage Timebomb Calculator
This calculator shows borrowers with no plan to repay an interest-only loan, or whose investments have fallen short, how much extra you may have to find if your lender forced you on to a repayment mortgage.