The Scottish BS unveils retirement interest-only mortgage

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The Scottish Building Society has added a Retirement Interest-Only (RIO) mortgage to its range of mortgage products for older people.

The mutual is one of the first lenders to offer a Retirement Interest-Only mortgage since the Financial Conduct Authority (FCA) reviewed later life lending and introduced proposals to improve access to mortgage borrowing for older people, including those with maturing interest-only mortgages without sufficient funds to repay them.

The Scottish Building Society RIO mortgage is available to homeowners in Scotland aged 60 and over who have a reliable monthly income in retirement. The society offers up to 50% of the value of the property as a cash lump sum and charges interest only on the loan.

Unlike standard interest-only mortgages there is no set end date for settlement of the loan and capital is only repaid after death or on the sale of the house. There is no maximum age limit.

For over 10 years it has offered an interest-only lifetime mortgage which allowed borrowers to unlock cash tied up in homes and pay only the interest on the loan. As with the new RIO mortgage, when the property is eventually sold the original loan is repaid and the remaining equity stays within the family.

Paul Alexander, head of business development at the Scottish Building Society, said: “The move by the FCA to widen access to affordable borrowing for older people presents a real opportunity for intermediaries who previously missed out on this growing market if they were not qualified to provide advice on equity release products.

“Now all advisers can handle this business and can take comfort from the fact that we are already specialists in interest-only later life lending with many years of experience under our belt.

“We treat everybody as an individual and are expecting high demand for our product, especially when older people become aware of the benefits. Where the applicants have a secure income and meet our affordability criteria, a Retirement Interest-Only mortgage may be a more suitable option than equity release. It provides an alternative to a house sale or expensive loan repayments and is good news for those nearing the end of a standard interest only mortgage who have a shortfall in savings to repay the loan.

“It also provides an attractive option for managing inter-generational wealth where older people could help younger members of the family buy their first home, for example, and may be an effective tool for reducing any inheritance tax burden.”

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