Can I transfer my RIO mortgage to a new property?

For many homeowners aged 55 and over, a Retirement Interest Only (RIO) mortgage offers a valuable way to maintain home ownership into retirement. If you decide to move house—perhaps downsizing or relocating—a crucial question arises: can I transfer my RIO mortgage to a new property?

This comprehensive guide, produced by Promise Money, explains the mechanics of RIO mortgage porting, the essential criteria you must meet, and the steps involved in successfully moving your existing RIO product to your new home.

Can I Transfer My RIO Mortgage to a New Property? Understanding Porting Options for Retirement Interest Only Loans

The ability to transfer or ‘port’ your RIO mortgage depends primarily on two factors: the specific terms and conditions of your original loan agreement and the lender’s current eligibility criteria. Unlike standard residential mortgages, RIO mortgages are specialist products designed for the retirement phase, meaning the criteria for porting can be highly stringent.

What is a Retirement Interest Only (RIO) Mortgage?

A RIO mortgage is designed for homeowners, typically aged 55 and over, who need a mortgage but whose income structure has changed due to retirement. Crucially, the borrower only pays the interest each month. The capital debt remains outstanding until a specific life event occurs, such as the homeowner passing away, moving into long-term care, or selling the property. At this point, the property is sold, and the proceeds are used to repay the original loan amount.

Because the repayment mechanism relies on the eventual sale of the property, RIO mortgages require lenders to be confident that the property will retain sufficient value and that the borrower’s interest payments are sustainable for their lifetime.

Understanding the Porting Mechanism

Porting is the process of moving an existing mortgage product, including its interest rate and contractual terms, from your old property to your new one. For borrowers who secured a favourable interest rate some time ago, porting can be highly beneficial as it avoids the need to switch to potentially higher current market rates and typically avoids Early Repayment Charges (ERCs) on the existing loan amount.

However, when you port a RIO mortgage, the lender treats it almost identically to a brand new application. This means you must pass updated affordability and suitability checks, even if you are keeping the loan amount exactly the same.

Key Criteria When Porting Your RIO Mortgage

When you seek to transfer your RIO mortgage, the lender will focus on two main areas: your ongoing financial sustainability and the viability of the new property.

1. Affordability and Sustainability Checks

Although RIO mortgages only require interest payments, lenders must ensure that these payments are affordable for the expected duration of the loan. When you port, the lender will re-examine:

• Retirement Income Assessment: They will confirm that your pension income, benefits, or rental income (if applicable) is stable and sufficient to cover the monthly interest payments.
• Joint Borrower Situation: If the RIO mortgage is held jointly, the lender must confirm that the mortgage remains affordable if one borrower were to pass away or move into care. This critical feature ensures the surviving borrower can continue to manage the debt until the second life event triggers the repayment.
• Credit History Review: A new credit assessment will be performed to ensure no significant changes have occurred since the original application that might impact your ability to service the interest.

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2. New Property Suitability

The lender must approve the new property you are purchasing. This involves:

• Valuation: An independent surveyor must value the new property. The Loan-to-Value (LTV) ratio must remain within the lender’s maximum limits. If you are moving to a more expensive property, you may need to apply for a ‘further advance’ (see below).
• Type and Construction: RIO lenders often have strict rules about property types. They typically require standard construction (brick and tile) and may refuse loans on properties with unusual features, short leases, or non-standard materials, as these could complicate the future sale used to repay the debt.
• Location: Lenders may have geographical restrictions or require the property to be easily marketable.

The Process of Porting Your RIO Mortgage

Transferring your RIO mortgage is a time-sensitive process that must be coordinated closely with your property sale and purchase. Here are the typical steps involved:

Step 1: Inform Your Lender Early

As soon as you decide to move, contact your current RIO lender. State clearly that you wish to port your existing mortgage product. They will provide details on their porting application process and highlight any potential fees.

Step 2: Obtain an Agreement in Principle (AIP)

The lender will perform an initial review of your circumstances and the new property details to issue an AIP, giving you confidence that the transfer is likely to be approved.

Step 3: Formal Application and Valuation

Once your offer on the new property is accepted, you must submit a formal application. This involves providing updated financial documentation and paying for the valuation survey on the new property.

Step 4: Legal Work and Completion

You will require a solicitor or conveyancer who is familiar with mortgage porting. They handle the transfer of the charge from your old property to your new one. It is essential that the sale of your old property and the purchase of your new property complete simultaneously, or within a very short, specified timeframe allowed by the lender (often 90 days), to avoid triggering Early Repayment Charges (ERCs).

Dealing with Different Loan Amounts

The complexity of the transfer changes depending on whether you are borrowing more, less, or the same amount.

1. Transferring the Same Amount

This is the simplest scenario. If the new property costs the same, you simply transfer the existing RIO balance and rates, subject to passing the updated affordability and suitability checks.

2. Transferring Less (Downsizing)

If the new property is cheaper, or you are using accumulated savings to reduce your mortgage debt, you will redeem (pay off) a portion of the original RIO loan. While you successfully port the remaining balance, you must check your contract for potential Early Repayment Charges (ERCs) on the repaid portion. Most lenders allow a degree of overpayment without penalty, but exceeding this threshold could be costly.

3. Requiring a Further Advance (Borrowing More)

If the new property is more expensive, you may need a ‘further advance’ to cover the difference. The existing RIO amount will be ported at your old rate, but the additional amount will be treated as a new loan part, often charged at the lender’s current market rate. This new borrowing requires extremely rigorous affordability checks, as the lender must be satisfied that your retirement income can sustain the interest payments on the larger debt.

It is important to seek independent, qualified financial advice when considering a further advance or deciding whether porting is truly the most cost-effective solution for your move. Organisations such as the MoneyHelper service provide excellent resources on understanding mortgage options in retirement.

When Should You Consider Remortgaging Instead of Porting?

While porting protects your current interest rate and avoids ERCs, it is not always the best path. You should consider remortgaging onto a completely new RIO product if:

• Your current rate is uncompetitive: If the current market rates for new RIO mortgages are lower than your existing ported rate, a new product might save you money in the long run.
• The new property fails criteria: If your new home does not meet the strict LTV or property type requirements of your current lender, you will be forced to seek a new lender anyway.
• You need different terms: If you wish to change the borrowing structure, add or remove a borrower, or access different features, a new mortgage provides greater flexibility.
• You want to avoid complexity: If the logistics of porting threaten to delay your property transaction, a straightforward new application with a different lender might be faster.

If you choose to redeem your existing RIO mortgage completely to take out a new one, be aware that the Early Repayment Charges for breaking the original contract could be substantial.

Potential Risks and Drawbacks of Porting

While porting offers continuity, there are risks to be aware of:

Firstly, the requirement to pass updated affordability checks means approval is never guaranteed. If your income has dropped significantly since the original RIO was taken out, the lender may refuse the transfer.

Secondly, if there is a gap between the sale of your old property and the purchase of the new one, you could inadvertently trigger Early Repayment Charges. You must ensure all legal timelines align perfectly.

Finally, a mortgage is a serious financial commitment. Your property may be at risk if repayments are not made. Failure to keep up with the monthly interest payments on your RIO mortgage could lead to legal action, increased interest rates, additional charges, and, ultimately, repossession of your property.

People also asked

Can I borrow more money when I port my RIO mortgage?

Yes, you can apply for a ‘further advance’ when porting your RIO mortgage. This additional borrowing is subject to strict underwriting, as the lender must verify your affordability for the increased interest payments. The further advance portion is typically charged at the lender’s current standard rate, which may be higher than your ported existing rate.

What happens if my current lender refuses to port my RIO mortgage?

If your current lender refuses the transfer, usually due to the new property not meeting valuation or construction criteria, or if your income fails the new affordability check, you will need to pay off your existing RIO mortgage (incurring any applicable Early Repayment Charges) and apply for a new RIO product with an alternative lender.

How long does the RIO porting process take?

The porting process duration is similar to a standard remortgage or purchase application, typically taking between 4 and 12 weeks, depending on the speed of the valuation, conveyancing, and the complexity of your financial circumstances. Delays can occur if new legal issues arise with the purchased property.

Do I need a deposit if I port my mortgage?

If you are transferring the existing loan amount to a new property of equal or lesser value, you typically will not need a new cash deposit, as the equity from your sale covers the necessary LTV ratio. However, if you are purchasing a significantly more expensive property and require a large further advance, the lender might require additional funds to maintain their maximum Loan-to-Value requirement.

Are there fees involved in porting a RIO mortgage?

Yes, while porting avoids the major Early Repayment Charges on the original loan amount, you will still incur several costs associated with the new property, including valuation fees, legal fees (conveyancing), and potentially a new product or arrangement fee for the ported product or for any further advance requested.

Transferring your RIO mortgage to a new property requires careful planning and compliance with rigorous criteria. By understanding your lender’s requirements regarding affordability and property suitability, and coordinating closely with your financial adviser and conveyancer, you significantly increase the chances of a successful and smooth move.