New data reveals that the number of Retirement Interest Only Mortgages (RIOMs) sold in 2022 was significantly below the Financial Conduct Authority (FCA)’s expectations, according to Responsible Life, a retirement mortgage specialist.
Despite a 23.4% increase in sales of RIOMs in 2022, the overall figures were still underwhelming, making up only 0.24% of the 1,290,082 mortgage products sold during the year.
In total, just 3,158 RIOMs were sold in 2022, up from 2,558 in 2021, falling significantly short of the FCA’s forecast of over 20,000 annual sales from 2021/22.
Introduced in March 2018, RIOMs were designed to eliminate age as a barrier for remortgaging for borrowers who cannot repay their conventional interest-only mortgages upon retirement.
Their introduction followed a relaxation of affordability tests by the FCA, meaning borrowers only need to demonstrate they can afford the monthly payments, without needing a long-term repayment plan.
However, despite these provisions, Responsible Life believes that in their current state, RIOMs will never become a mainstream financial instrument for retired homeowners, even though there is substantial demand for them.
UK Finance data indicates that as of the end of 2021, there were still 754,000 pure interest-only mortgages outstanding. Yet, total RIOM sales have not even reached 10,000, with only 8,943 sold by the end of 2022.
Steve Wilkie, executive chairman of Responsible Life, said: “Hundreds of thousands of people face hitting retirement with conventional interest-only mortgages they cannot repay and RIOMs could be a useful product.
“But they must be capable of reaching a wider audience, and that rests on how easily applicants pass affordability tests,” he said.
Wilkie also proposed potential solutions, suggesting an overhaul of the ‘sole survivor’ rule which requires each individual borrower to show they can afford the monthly payments on their own.
“An easy way around this rule would be to allow borrowers to plan for the sale of their home as a repayment vehicle, or convert their RIOM into a lifetime mortgage when it makes financial sense,” he added.
