I believe we’re wrong to talk about the market for equity release. Let me explain to you why.

Equity release products are a narrow silo of a broader product range. This range of products is suited to people over the age of 55. That’s why we’re better off calling it the later life market. Or lending to retirement.

Equity release products – lifetime mortgages and home reversion plans – used to be dire. They have improved enormously over the last few years, giving customers many more options that legacy products didn’t have.

They also borrow features from two existing mortgage products, becoming hybrid models. The two existing later-life products are RIOs and TIOs.

These two products have been driven by the market to enable certain types of customers to continue their mortgages well into retirement and beyond. These people took out interest-only mortgages with no payment plan, wanting much lower monthly payments.

The challenge they face is that their interest-only mortgages were old school. They had terms that came to an end before their normal retirement age. So the lender wants their capital back, and these borrowers don’t have it.

TIO – Term Interest Only Mortgage

Nothing is new except lenders are more willing to lend over a term than extends well into later years. So long as the customer has pension or savings income to rely upon and can show that they can afford the mortgage interest. Hey, presto, they can have their mortgage.

Usually available from age 50 to anywhere around age 90. Terms can last up to 30 years and are typically lent as fixed-rate money – 5, 10, or 20 years.

They are much more lenient on affordability but have to show income that stretches throughout the term. Since interest is payable, there is no debt roll-up.

RIO – Retirement Interest Only

The only difference is that these interest-only mortgages have no term, and the capital is repaid by selling the house, on death or permanent care. For joint borrowers, it’s the death of both, so affordability is based on a lower income. This can cause issues obtaining the mortgage that’s needed.

Like TIOs, they are mainstream mortgages requiring no additional exams from the broker.

Modern RIOS are usually for those above age 55 and can take all sorts of income into account to afford the loan. Annuity payments, State Pension, pension pots and drawdown. Understanding these items will help underwrite the mortgage as they will primarily consider whether the income reverts to the other party on the first death. Another reason for CPD on pensions.

LTVs tend to be around the maximum of 75%, but this is determined by e lender.

Lifetime Mortgages

Have been borrowing the features of TIOs and RIOs to create a genuine hybrid loan. Interest payments can be made at any time and then stopped later on. Capital repayments can also be made – but usually no more than 10% of the loan each year. Coupled with the ability to take drawdown tranches of money to enable future borrowing, these modern Lifetime Mortgages have come on in leaps and bounds.

It really is a later-life lending market, not equity release lending.

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