The UK’s financial regulator, the Financial Conduct Authority (FCA), has urged borrowers with interest-only mortgages to speak to their lenders, amid fears of many losing their homes.
The FCA, which is currently carrying out a thematic review of interest-only home loans, said that while lenders have been contacting their borrowers to discuss repayment strategies, engagement rates have been low.
The regulator said it was concerned that unless borrowers have a plan as to how they will repay the capital they owe on the mortgage at the end of the term, they risk losing their homes.
According to the FCA there are currently 1.67 million full interest-only and part capital repayment mortgage accounts outstanding in the UK, representing almost 17% of all outstanding mortgage accounts.
What’s more, over the next couple of years a significant number of those accounts will require the repayment of the capital borrowed.
Customer communication
The regulator said that lenders are attempting to communicate with their customers to find out about their repayment strategies and to offer assistance where needed.
However, it noted that these efforts have largely been based on writing to customers at certain points before the mortgage matures, and that where lenders had tailored their approach to different types of borrower, they had been able to increase contact with the borrowers believed to be most at risk of losing their homes.
Lenders were also criticised for the processes they required some borrowers to go through when arranging repayment options.
These included delays in getting to speak to advisers, making multiple phone calls and repeating information which they had previously provided.
Borrowers advised to talk to their lender
Jonathan Davidson, executive director of supervision – retail & authorisations at the FCA, said that good progress had been made in reducing the number of people with interest-only mortgages, though the regulator is “very concerned” that a large number may not be able to repay the capital they owe and risk losing their homes.
He continued: “We know that many customers remain reluctant to contact their lender to discuss their interest-only mortgage for a variety of reasons. We are very clear that people should talk to their lender as early as possible as this will give them more options when it comes to the next steps they can take.”
Paul Smee, head of mortgages at the mortgage lender trade body UK Finance, said: “Lenders have already improved communication with their customers and will continue to do so, to ensure that customers looking for the right option at the end of their interest-only mortgages get the right advice and support.
“Lenders also recognise the need to maintain contact with their customers through the life of their interest-only mortgages.”
