The number of homeowners taking out retirement interest-only mortgages to consolidate debt has fallen by almost half over the past year despite the looming cost of living crisis, according to Hodge Bank.
The percentage of customers who applied for RIO loans who wanted to cut their debts has fallen to 7% so far this year, compared to 13% in the same period a year ago, says the lender after analysis of its own sales data.
However, the survey did show some evidence of belt-tightening, with the number of property owners seeking RIO loans for home improvements slipping from 27% to 18% over the same period.
RIO loans are for homeowners aged 55 and over, and allows them to take out a new mortgage, or replace their current interest-only mortgage, with one that lets them continue making interest-only payments for the remaining time that they live in their home.
These borrowers may also choose to take a larger mortgage than they currently have to use for other purposes. These types of loans were first regulated by the Financial Conduct Authority in March 2018.
The lender says the top two other reasons to take out an RIO this year were to buy another property, at 31%, compared to 27% a year ago. It adds that 27% of borrowers raised no further cash, compared to 30% a year ago.
Hodge business development director Emma Graham says: “This is a big drop for debt consolidation in particular, especially given the cost of living crisis and inflation continuing to rise. You would have expected more people to be using products such as the RIO to make their debt more manageable and have it all in one place – but according to our data, it seems that the opposite is true.
“The fall in the use for home improvements is understandable though, as many homeowners are no doubt tightening their belts and leaving any DIY or house extensions for a few years until the cost of building materials and labour drops.
“But it is encouraging to see that the RIO product is still proving useful to so many people to fund other improvements in their lives, such as a new home or helping out loved ones, at this economically difficult time.”
The lender adds that has also seen a 41% rise in the value of its RIO mortgage book from January to August this year, compared to the same period in 2021.
