Debt consolidation halves among RIO borrowers: Hodge

According to Hodge Bank, the number of homeowners taking out retirement interest-only mortgages to consolidate debt has nearly halved in the past year despite the looming cost-of-living crisis.

The percentage of customers who applied for RIO loans who wanted to reduce their debts has fallen to 7% so far this year, from 13% in the same period a year ago, the lender says after analyzing its own sales data. .

However, the survey showed signs of belt tightening, with the number of homeowners applying for RIO loans for home renovations dropping from 27% to 18% over the same period.

RIO Loans are for homeowners aged 55 and over and allow them to take out a new mortgage or replace their current interest-only mortgage with one that allows them to continue making interest-only payments for as long as they they live in their house. .

These borrowers can also choose to take out 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 other two main reasons for taking out an RIO this year were to buy another property, at 31%, up from 27% a year ago. He adds that 27% of borrowers have not raised any additional money, compared to 30% a year ago.

Hodge’s business development director Emma Graham said: ‘It’s a big drop for debt consolidation in particular, especially given the cost of living crisis and inflation which continues to rise. . You’d expect more people to use products like RIO to make their debt more manageable and have everything in one place – but according to our data, the opposite seems to be true.

“The decline in use for home renovations is understandable, however, as many homeowners are no doubt tightening their belts and giving up any DIY or home extensions for a few years until the cost of building materials and the workforce is down.

“But it’s encouraging to see that the RIO product is still proving useful to so many people to finance other improvements in their lives, such as a new home or helping loved ones, during these difficult economic times.”

The lender adds that it also saw a 41% increase in the value of its RIO mortgage portfolio from January to August this year, compared to the same period in 2021.