Legal & General has launched a new product designed to help the growing number of borrowers in retirement who are trapped between the traditional lifetime mortgage and residential mortgage markets.
These borrowers include those with some income in retirement but not enough to qualify under residential mortgage affordability assessments, and for whom traditional interest roll-up lifetime mortgages may not be an immediate solution.
L&G said the Optional Payment Lifetime Mortgage (OPLM) combines the flexibility of residential monthly interest payments with the long-term security of a lifetime mortgage, as customers are able to stop paying interest at any time and remain in their home for the rest of their lives.
The OPLM has also been designed to respond to the FCA’s request for the market to offer more choices for customers wanting to borrow in retirement – something the FCA highlighted in its recent rules on Retirement Interest-Only mortgages.
As with other lifetime mortgage products, the interest rate on Legal & General’s OPLM product is fixed for life, which provides customers with long-term certainty that their monthly payments will never increase. The product will only be available via intermediaries and on an advised basis.
Customers will not need to pass any affordability assessments or have a capital repayment strategy in place, as the amount owed is repaid from the sale of the property upon death or moving out of the home into long-term care. In the event that they can no longer afford or want to pay their monthly interest repayments, the customer can choose to stop and instead the interest is added to the loan each month.
Steve Ellis, CEO, Legal & General Home Finance, said: “At Legal & General, we often hear the same question from customers with interest-only mortgages – ‘can’t I just continue to pay my interest?’. These customers feel let down by the mortgage market – they have always paid their interest, but no longer qualify for a new mortgage because of affordability assessments or, more simply, their age. OPLM is a direct response to this growing customer need for a different kind of retirement mortgage, one that provides flexibility for borrowers and which also has the potential to address the interest-only shortfall that remains a fundamental issue for the mortgage market.”
OPLM is available to mortgage customers aged 55 and over and has been carefully designed to offer a hybrid solution to many of the 1.67m consumers with outstanding interest-only mortgages, particularly the growing number of borrowers who are approaching the end of their mortgage term but have no capital repayment plan in place.
Ellis added: “Whilst OPLM is different, it still comes with all the lifetime mortgage guarantees – the biggest of which is the right of tenure for life. If consumers find they can’t or don’t want to continue to pay the monthly interest payments for any reason, they can simply convert to interest roll-up – with no fuss and no assessments.
“The launch of OPLM and the positive move from the FCA on Retirement Interest-Only mortgage rules clearly shows that Legal & General is part of a wave of innovation in the later life lending market. OPLM highlights one of the ways Legal & General is keeping our promise to develop solutions for customer needs, giving borrowers the choice and control they want over their retirement.”