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FCA urges action on interest-only mortgages

The Financial Conduct Authority (FCA) is urging people with interest-only mortgages to contact their lender, after it found many consumers have not checked their repayment options.

Amber-Ainsley   Pritchard

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The FCA published a report with the findings of its thematic review into the fair treatment of existing interest-only mortgage customers by lenders this week.


It found that nearly one in five mortgage customers have an interest-only mortgage and the regulator is concerned that shortfalls in repayment plans could lead to people losing their homes.


The FCA also found that, although mortgage lenders are writing to customers prior to their mortgage maturing, engagement rates with firms are low.


The review covered 10 lenders who represent around 60 percent of the interest-only residential mortgage market and looked at how lenders are treating these customers to help ensure their mortgages are repaid at maturity.


The FCA said there are currently 1.67m full interest-only and part capital repayment mortgage accounts outstanding in the UK. They represent 17.6 percent of all outstanding mortgage accounts and over the next few years increasing numbers will require repayment.


The review found that lenders are actively trying to communicate with their customers to understand repayment strategies and to provide appropriate and affordable solutions where needed.


However the FCA said, for most lenders, the engagement is based on writing to customers at specific times before maturity. Where lenders tailored their work to the different customer types identified, they were able to increase contact with those considered higher risk.


The regulator also said that, although lenders were recommending repayment options that appeared appropriate for those customers who made contact and that the harm of repossession due to non-repayment was reduced, the processes which customers had to follow were, on many occasions, challenging. This included delays in getting to speak to advisers, making multiple phone calls and repeating information previously provided.


Jonathan Davidson, 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.”


“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.”


The FCA is due to publish an interim Mortgage Market Study in 2018.

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