Interest-only mortgages under investigation by the FCA
The Financial Conduct Authority (FCA) has announced that it will investigate mortgage lenders with borrowers on their books who have interest-only mortgages to ensure that they are being treated fairly.
The FCA says that 1.8 million UK home owners have this type of mortgage (excluding buy-to-let) and many loans are due to be repaid over the next couple of years. In some cases, borrowers don’t have adequate plans to repay them. The FCA acknowledges that these borrowers will need urgent help and support from their lender to find a workable solution.
Before the new stricter rules on mortgage eligibility came into force, interest-only mortgages were in widespread use. An interest-only mortgage is one where the monthly payment only covers the interest owed, meaning that at the end of the mortgage term the borrower must repay the original capital sum that they were lent.
THE SCALE OF THE PROBLEM
The average amount owed by those aged over 55 with interest-only mortgages is put at £91,000, with one in seven owing more than £150,000.
Many borrowers have yet to give proper consideration as to how they will repay the capital amount when it becomes due at the end of the mortgage term. They may have to resort to selling the property, downsizing, or using their savings or pension pots to clear the debt. If the money can’t be found, then the homeowner could, in extreme cases, face repossession.
Lenders are increasingly aware that some people with interest-only mortgages are likely to face difficulties in the future and are putting plans in place to avoid the risk of borrowers defaulting and the need to sell. Some are providing their interest-only borrowers with information on mainstream or lifetime mortgages (a form of equity release), for example.
If you could use some advice on your interest-only mortgage, please get in touch.