Concerns for interest only borrowers
The FCA has raised concerns over lender engagement rates with interest-only mortgage borrowers, warning that "that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage".
is urging interest-only borrowers to contact their lender to discuss payment options, saying it is "concerned that shortfalls in repayment plans could lead to people losing their homes".
Although mortgage lenders are writing to customers prior to their mortgage maturing, the FCA says engagement rates with firms are low.
Its review found that although lenders were recommending repayment options that appeared appropriate for customers, 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.
In 2013 the FCA identified three residential interest-only mortgage maturity peaks. It believes the first peak, happening now, is likely to have more modest shortfalls due to the profile of customers typically being those who are approaching retirement with higher incomes, assets and levels of forecast equity in their property at the end of term.
However the FCA is concerned that 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, who are more at risk of shortfalls.