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Is this the emergence of the generous generation? 16% take out a RIO mortgage for a family gift

New data from Hodge reveals that 16% of those who take out a Retirement Interest Only (RIO) mortgage on their property do so to provide a family gift.

Matt Burton, Managing Director of Mortgages at Hodge
Matt Burton, Managing Director of Mortgages at Hodge

With the average age of property owners opting for a RIO mortgage being 72, is this the emergence of the generous generation? Instead of cruises and round-the-world trips, more homeowners are opting to gift the money to their family instead.

Hodge was one of the first lenders to launch a RIO mortgage last year and has seen a slow but steady increase in the amount of people taking out this new product, with more than £25 million being lent to RIO customers since launch.

Hodge’s data* for RIO mortgage reveals the top five reason borrowers take out a RIO mortgage:

  1. Pay off existing mortgage                                        22%
  2. Buy another property                                               20%
  3. Debt Consolidation                                                   18%
  4. Family gift                                                                  16%
  5. Home improvements                                               14%

The data also showed the average RIO mortgage taken out in 2019 was £129,576. Which is relatively close to the average mortgage debt of a first time buyer in the UK in July of this year, which stood at £138,999.**

Matt Burton, Managing Director of Mortgages at Hodge, said: “This data is very revealing. We were surprised at the age of our RIO customers, when the Financial Conduct Authority (FCA) reclassified these products, they saw a need for a mortgage that those approaching retirement could use to release equity in their homes that wasn’t a traditional equity release mortgage.

“Yet it seems that those in their seventies are seeing the advantage of a RIO mortgage, which allows them to enjoy the equity in their home and manage the interest payments.”

Matt continued: “Despite figures saying that the uptake on RIO mortgages has been slow, we have been encouraged by the amount of people using the product to achieve their goals – which again made for interesting reading – with an amazing 16% of our customers using their payment to give a family member a gift.

“It seems the bank of the grandparents is well and truly open with our Hodge customers as they use their property’s equity to help out family.”

“The data also shows that our customers are using the RIO mortgage to their own advantage, with a fifth (20%) using the loan payment to buy another property and 14% using the money for home improvements – which could be a sound investment.”

Matt added: “The introduction of the Hodge Fixed-for-Life RIO mortgage in September, the first of its kind on the market, has seen an increase in the amount of inquiries we are having around the RIO and we think this is only set to increase as those approaching retirement age seek to free up money from their homes with manageable interest payments.”

The data also revealed that just over a fifth (21%) of Hodge’s RIO customers come from the South East of England, 19% are from the South West, with 13% living in Scotland.