The Financial Conduct Authority (FCA) is urging people with interest-only mortgages to take action after they have found that many have not talked to their current lender about the repayment options available to them. The FCA is concerned that a lack of repayment plans could result in people losing their property, as nearly 1 in 5 people have interest-only mortgages.
The FCA conducted a review which covered 10 lenders that represent roughly 60% of the interest-only residential mortgage market. They analysed how the lenders were treating the customers to help them repay their mortgage at maturity. In the UK, there are currently 1.67 million repayment mortgage accounts that are full interest-only and part capital. They represent 17.6% of all unpaid mortgage accounts over the next few years, with increasing numbers requiring payment.
Within this review, the Financial Conduct Authority also found that although the lenders are continuously trying to communicate with their customers to help them understand the different repayment strategies, they found that this was at specific times before maturity, rather than aiming at those who were considered to have a higher risk. The research also found that customers found the process of discussing repayment strategies to be challenging, as there were delays in speaking to advisors, customers had to make multiple phone calls and have to repeat information which they have already previously provided.
There were three residential interest-only mortgage maturity peaks in 2013, which was identified by the FCA. The first peak is currently happening and it is likely to have more uncertain deficits due to the profiles of customers. The typical customer profile is those who are nearly retiring with higher earnings, assets and higher levels of equity in their property at the end of the term. The next two peaks are predicted to be in 2027 or 2028 and 2032. These peaks will include fewer wealthy individuals that had higher income at the point of the application. There will also be greater rates of mortgages converted from repayment to interest-only and there is predicted to be lower forecast equity levels. Overall, the Financial Conduct Authority is concerned that there will be more people at risk of a lack of repayment plans. The FCA has produced a leaflet to encourage people to take action about their repayment plans.
About the Author
Stuart Mosely (CeFA, CeMap, CLTM) founded SJ Financial Solutions in June 2005 having spent 12 years with big corporates such as Halifax and Santander. He felt the personal touch and straight speaking was missing from financial and mortgage advice services and set up SJ Financial Solutions to change this.
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