Competition keeps growing within the mortgage market for older borrowers, with two new providers launching retirement interest-only mortgages (RIOs).
Leeds Building Society has launched a fee-free retirement interest-only mortgage and Saffron Building Society features a brand new discount offer.
The two new deals are an option for older borrowers who wish to release some money. They might also offer a lifeline to those trapped on existing interest-only mortgages they're not able to pay back.
Which? requires a closer look at the new retirement interest-only mortgages available on the market and how they compare.
What are the the Leeds Building Society deal?
The new Leeds Building Society Retirement Interest-Only mortgage offers a fixed rate of three.83% for 5 years and it is available as much as 55% loan-to-value.
The deal comes with a free standard valuation and no arrangement fees – which Leeds claims is really a first with this kind of product.
The repayment method is interest-only, but you could make as much as 10% capital repayments each year too. The offer is available both to people purchasing a new home and people remortgaging their current property.
Leeds need the near future sale from the property because the repayment vehicle for this loan and will assess affordability through a borrower’s current and future income, and therefore if you’re soon to retire they will take your reduced earnings but also your pension into account.
The deal is available to borrowers aged between 55 and 80 in the point of application. There is no minimum equity required and also the maximum loan dimensions are lb1.25m.
If you repay the borrowed funds (for instance by selling the home or remortgaging having a different provider) inside the first 5 years, you'll have to pay an earlier repayment charge. This can cost 5% in years 1 and 2, 4% in year three, 3% in year four and 2% in year five.
Leeds doesn't offer this deal direct, so you'll have to contact a mortgage broker to go over whether this option could work for you.
How concerning the Saffron Building Society deal?
The Saffron Building Society Lending Into Retirement Downsizing deal is a three-year discount mortgage offered by 60% loan-to-value.
It offers a 2.7% discount around the lender’s standard variable rate, meaning its initial rate is 2.94%. The the mortgage mean that the minimum rate it might drop to is 2%, and the deal is available to those looking to purchase or remortgage.
There is a lb999 fee to set up the borrowed funds, which could simply be carried out by a home loan broker.
The repayment method is interest-only and Saffron will accept sale and downsizing to another UK residence like a repayment strategy. Borrowers are free to repay the borrowed funds once they retire.
However, you'll want no less than lb250,000 equity in your property if you wish to use downsizing as your repayment plan. The minimum loan is lb30,000 and you may borrow up to lb1m.
You will need proof of retirement income for that affordability check and examples of properties you could downsize to as proof of your repayment strategy.
There is no age restriction on this product however, you ought not to be a lot more than five years away from retirement whenever you apply.
How perform the new deals compare to the competition?
The new deals join a growing range of retirement mortgages made to help older borrowers release cash or escape interest-only deals they can’t afford to repay.
Aldermore Bank, Bath Building Society, Hodge Lifetime, Loughborough Building Society, Post Office Money, Scottish Building Society, Shawbrook Bank, Tipton & Coseley Building Society and Vernon Building Society all offer options.
The criteria for every deal can be quite particular and lots of are only available through a broker. You can see a detailed breakdown of the factors for every lender using our guide retirement interest-only mortgages explained.
What are RIO mortgages and who are they suited to?
Retirement interest-only mortgages allow older borrowers to repay the interest on their own mortgage although not the capital (the sum borrowed to pay for the price of the home) every month.
The capital is generally repaid when the borrower dies, moves into long-term care or sells the property. However, some RIO deals have terms, meaning the borrowed funds either has to be settled after a set period of time or once the borrower reaches a particular age.
Older borrowers who're struggling to obtain a standard residential mortgage due to their age may need retirement interest-only mortgages.
RIOs could also be a choice for those who are finding it difficult to remortgage from a standard interest-only mortgage, such as the a large number of borrowers who took one out before the credit crunch, once they were sold to individuals without thorough checks being made into the way they would repay the borrowed funds.
People seeking to release some cash from the value they hold within their home, perhaps to renovate or help out a younger family member, may also find RIOs an appealing alternative to equity release.
