Legal & General: The evolution of the Retirement Interest Only mortgage

By Claire Singleton, CEO of Legal & General Home Finance

Recent news from the ERC that the value of UK private property had hit £6 trillion for the first time was another clear indication of the important role property wealth will play in future retirement planning. With this in mind it is important for us, as an industry, to continue to innovate and offer products that suit the flexible lives that customers lead, ensuring we support a range of unique financial circumstances.

Retirement Interest Only mortgages were introduced to reflect this shift. It became apparent that, for older people who wanted to generate income to fund their goals, aspirations and lifestyles, or simply to re-mortgage, there was a lack of appropriate financial products to suit their needs. This was indicative of the financial exclusion that can develop when we try to take a ‘one size fits all’ approach to one of the fastest growing groups of people.

We have seen customers coming to advisers with an expanding variety of needs. The growing requirements faced by them is likely to have contributed to the increase in providers offering Retirement Interest Only mortgages, as they seek to provide a flexible solution for their customers.

The product may also have increasing relevance in the wake of the Covid-19 pandemic. As a Retirement Interest Only mortgage only requires a customer to pay off the interest each month, they will have lower monthly repayments, which means less strain on monthly income. This is particularly relevant now, as the economic circumstances surrounding the pandemic has seen a significant impact on the incomes of people of retirement age. Research we undertook last year found nearly one in four retired people (23%) have seen their finances impacted in some way due to Covid-19.

The pandemic has opened many people’s eyes to the value of the community in which they live too. Many older borrowers, who may have been looking to their property wealth to fund retirement through downsizing, may now be reluctant to move home and leave their support network behind. A Retirement Interest Only mortgage gives those who wish to remain in their home for their later years the peace of mind that they can avoid having to downsize to a smaller property in order to supplement their retirement income.

As an industry, we have a responsibility to ensure that we are constantly evolving and adapting to our customers’ needs as and when they begin to change. The evolution of Retirement Interest Only mortgage products is a great example of how we are doing this, providing customers with another option to tackle financial challenges in retirement and enabling them to live a better, more-fulfilled retirement as a result.




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