You are here: Home - Mortgages - Remortgage - News -

Interest-only mortgage borrowers risk losing their home, regulator warns

0
Written by: Lana Clements
30/01/2018
Many of Britain’s hundreds of thousands of interest-only borrowers risk losing their homes after failing to put adequate repayment plans in place, the Financial Conduct Authority (FCA) has warned.

The regulator is concerned that significant numbers of interest-only customers have shortfalls in their repayment plans and have not contacted their lender to talk about options.

Almost one in five of all UK mortgage customers are on interest-only deals – a total of around 1.67 million.

Mortgage lenders are writing to interest-only customers ahead of deals maturing to check repayment strategies are on course, but many borrowers are not engaging, the FCA found.

Its thematic review covered 10 lenders which represent around 60% of the interest-only mortgage market.

The FCA also ordered lenders to improve their strategies for dealing with customers who did make contact, after finding many faced delays to speak to advisers, made multiple phone calls and were handed repeat information.

Jonathan Davidson, FCA executive director of supervision – retail and authorisations, said: “Since 2013 good progress has been made in reducing the number of people with interest-only mortgages.

“However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.”

Customers have now been urged to talk to their lender sooner rather than later.

Davidson added: “We are encouraged to see that lenders have taken positive steps to engage with and help their interest-only customers.

“However, as the number of maturities start to increase towards 2032, it is important that lenders take time to review and, where possible, improve, their own strategies.”

The three interest-only peaks

In 2013 the FCA identified three residential interest-only mortgage maturity peaks.

Borrowers in the first peak, happening now, will typically have modest shortfalls in capital repayment with customers typically having higher incomes, assets and levels of forecast equity in their property at the end of term.

But the next two peaks in 2027/2028 and 2032 include less affluent individuals who had higher income multiples at the point of application, greater rates of mortgages converted from repayment to interest-only and lower forecast equity levels.

The FCA is worried these borrowers are at greater risk of shortfalls.

The regulator has not revealed the number of high-risk customers who could struggle to repay the capital on their loan.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

How to help others and donate to food banks this winter

This winter is expected to be the most challenging yet for the food bank network as soaring costs push more pe...

Your rights for refunds if travel is affected by strikes

There have been a wave of strikes this year across many different industries, and more are planned over Christ...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week

Privacy Preference Center

Necessary

Advertising

Analytics

Other