Regulator plans new review of interest-only mortgages
Around 1.8 million UK home owners currently have outstanding interest-only mortgages, excluding buy-to-let, and many do not have an appropriate strategy to repay them, said the Financial Conduct Authority.
It said: “We will look at how firms treat borrowers whose interest-only mortgages are approaching maturity and their ability to ensure these customers are treated fairly. This will include those interest-only mortgages that are due to be repaid by 2020 – where borrowers have the least amount of time to find a solution.”
The number of borrowers reaching term-end on interest-only mortgages with no repayment vehicle is expected to peak at around 10,000 customers a year until 2020, according to Key Retirement, a financial planning firm.
Consumer research conducted by GFK and commissioned by the FCA, which reported in May 2013, suggested of those with a mortgage due for repayment up to and including 2022, 49% would have an average shortfall of £56,200.
The regulator’s messaging has been mixed on interest-only, from Martin Wheatley’s ticking time bomb assertion in 2012 to suggestions that the clamp down had led to a lack of interest-only products in 2013.
Lenders including Santander, Virgin Money, NatWest, Leeds BS and Scottish Widows have been among lenders relaxing interest-only criteria and seeking market share in recent years.
Dean Mirfin, technical director at Key Retirement, said of the 10,000 borrowers coming to term-end, 5,000 are expected to have no repayment vehicle at all.
Mirfin said: “It is essential, for this first wave of maturities, that banks and other lending institutions take action sooner than later, these customers are the most vulnerable as they have little time to act. We are engaging with a number of lenders to support their range of solutions but sadly not enough. We hope that the FCA’s announcement expedites that progress.”