Can I move house with a RIO mortgage?

Retirement Interest Only (RIO) mortgages are designed to help older homeowners manage their finances, allowing them to make interest payments until a defined life event, typically moving into long-term care or passing away. If you currently hold a RIO mortgage, moving home is certainly possible, but the process is governed by strict rules designed to protect both the borrower and the lender. Success depends heavily on maintaining affordability and meeting the lender’s criteria for the new property.

Can I Move House with a RIO Mortgage? Understanding Porting and Affordability

A Retirement Interest Only (RIO) mortgage is a specific type of regulated product aimed at borrowers aged 55 and over. Unlike standard interest-only mortgages, the capital is only repaid upon the sale of the property, typically after the homeowner dies or moves into permanent residential care. Because of this long-term commitment, the lender must be satisfied that the monthly interest payments are sustainable indefinitely.

When you decide to move house, you essentially have two main options regarding your existing RIO:

1. Porting the Mortgage: Moving your existing mortgage product and terms to the new property.
2. Redeeming and Reapplying: Paying off the existing RIO and applying for an entirely new RIO or another form of later-life finance.

In most scenarios, porting is the preferred method, especially if you have favourable rates locked in. However, porting is not a right; it is a request that requires full re-underwriting and approval by your current lender.

The Porting Process for RIO Mortgages

Porting means transferring the outstanding balance and existing terms (such as the interest rate and any early repayment charges, or ERCs) to the new security property. While this sounds straightforward, the lender views porting as a new application because the security (the property) is changing.

Affordability and Stress Testing

The single biggest hurdle when porting a RIO mortgage is affordability. Your lender will need to re-verify that your existing income—which usually comes from pensions, investments, or certain benefits—is sufficient to cover the interest payments on the new loan amount.

• New Property Value: If the new property is cheaper, the loan-to-value (LTV) ratio might decrease, which is usually favourable.
• Upsizing the Loan: If you need to borrow more money (a “top-up”), the lender must stress-test your finances against the increased payments. The top-up is usually treated as a new mortgage product segment, potentially with different terms or rates.
• New Criteria: Even if your financial situation hasn’t changed, lending criteria evolve. The lender will assess you against their current rules, which may be stricter than when you originally took out the RIO.

It is crucial to prepare your financial documentation thoroughly before attempting to port. For guidance on preparing for a mortgage application, it can be useful to check your standing credit history. When applying for any new mortgage product, including porting an existing RIO, the lender will conduct thorough checks, including looking at your income and credit history. Knowing your financial standing helps speed up the process. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Property Suitability and Valuation

The new property must be acceptable to the lender. RIO mortgages often have specific requirements regarding the property’s condition, location, and type (e.g., standard construction, not commercial usage, minimum valuation). If the new property is unique, rural, or non-standard, it could complicate or prevent the porting process.

A full valuation will be instructed, and the lender must be comfortable that the property provides sufficient security for the long term.

What If Porting Is Not Possible?

If your current lender declines the porting application, perhaps because the new property is unsuitable or you no longer meet their revised affordability checks, you must explore alternative options:

1. Applying for a New RIO Mortgage

You can apply to a different RIO provider. This involves redeeming your current mortgage (and potentially incurring an ERC) and starting fresh. Different lenders have varying criteria regarding income streams, maximum age limits, and property types, so one provider may accept an application that another declines.

2. Equity Release Products

If affordability is the core issue—meaning you cannot demonstrate sufficient income to sustain interest payments—you might consider Lifetime Mortgages, a form of equity release. With a Lifetime Mortgage, no monthly payments are required; the interest rolls up and is repaid when the home is sold. This alleviates the affordability burden but significantly increases the debt over time.

For official information regarding selling your property, mortgages, and equity release, you can consult government-backed resources like MoneyHelper (formerly the Money Advice Service).

Costs and Potential Implications of Moving

Moving house with a RIO mortgage incurs several costs that must be factored into your budget:

• Early Repayment Charges (ERCs): If you redeem your RIO within an initial fixed-rate period, the ERC can be substantial, often several thousand pounds. If you port the loan, the lender may waive the ERC, but you must check the specifics of your agreement.
• Valuation Fees: A full valuation is mandatory for the new property.
• Legal Fees: Solicitors are required for both the sale and purchase transactions.
• Product Fees: If you take out a top-up loan or a new RIO, there will be arrangement or product fees associated with the new borrowing.
• Stamp Duty Land Tax (SDLT): You must pay SDLT on the purchase of the new property if the value exceeds the current thresholds.

If you are downsizing and reducing the size of your RIO mortgage, the lender may charge a partial early repayment charge on the capital you pay off, even if you are porting the remaining balance.

People also asked

Can I port my RIO mortgage if I am downsizing?

Yes, you can usually port a RIO mortgage when downsizing. Downsizing generally makes the move simpler from a lending perspective because the Loan-to-Value ratio (LTV) on the new property may improve, and the interest payments required may decrease, bolstering your affordability assessment.

What happens to my RIO if I move into residential care?

Moving into long-term residential care is typically one of the contractual trigger events for a RIO mortgage. When this occurs, the property must usually be sold, and the sale proceeds are used to repay the outstanding interest and capital balance of the RIO loan.

Are RIO mortgages regulated by the FCA?

Yes, Retirement Interest Only (RIO) mortgages are regulated by the Financial Conduct Authority (FCA). This means lenders must adhere to strict rules concerning responsible lending, suitability, and ensuring that the borrower receives clear, fair, and non-misleading information throughout the application and servicing process.

How long do I have to sell the property after the RIO trigger event?

This period is set by the lender and stated in the mortgage terms and conditions, but it is typically between 6 and 12 months after the trigger event (death or entry into care). If the property is not sold within that timeframe, the lender reserves the right to take legal action to recover the debt.

Will moving house affect my ability to borrow more later in retirement?

Any move involving increased borrowing will reduce the equity available in your new home, which could impact future borrowing capacity. Furthermore, changing your mortgage product, even through porting, might restart any early repayment charge periods, potentially restricting your financial flexibility in the immediate future.

Final Considerations

The ability to move house with a RIO mortgage hinges on a comprehensive re-assessment of your personal affordability and the suitability of the new security property. Because RIO mortgages are designed for long-term security, lenders must be assured that the move does not introduce undue financial risk. Engaging a specialist mortgage broker who understands the complexities of later-life lending is highly advisable to navigate the application process and explore the most cost-effective path, whether through porting, reapplying, or exploring short-term bridging solutions.