Retirement interest-only mortgages are set to become more popular following the FCA removing hurdles to selling them.
The regulator sees RIO mortgages as a possible aid to the waves of maturing interest-only loans with no repayment strategy.
However, the FCA also wants RIO mortgages to be sold more widely, for example as an additional option to downsizing or equity release.
RIO mortgages allow consumers to keep paying monthly interest payments until they die or go into long-term care. The lender then gets the rest of their loan paid back through selling the house.
But in the past the regulator lumped RIO mortgages in with equity release, calling both ‘lifetime mortgages’ under the terms of the Mortgage Credit Directive.
But RIO mortgages are simpler than much equity release. They have no interest roll-up, require a less detailed sales process and need less advanced qualifications to sell.
As such, many lenders stopped offering the products.
Last September the FCA consulted on removing regulatory barriers to firms selling RIO mortgages. The proposals were widely backed by the mortgage market.
Today the FCA announced it has reclassified RIO loans away from lifetime mortgages, according to a Handbook notice.
The FCA says it will treat RIO mortgages as standard mortgages, not as equity release. RIO sales will not have to be advised.
However, the FCA says: “In practice most retirement interest-only mortgages will be sold with advice as our standard mortgage rules require this. For example, advice is required if the sale is interactive or the mortgage is used to consolidate debt.”
RIO loans will not be subject to MCD rules.
The FCA has updated its Handbook and the MCOB rules with the changes.