MortgagesJun 10 2014

FCA praises CML members for interest-only action

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Mortgage lenders have “successfully” met a commitment they gave to the Financial Conduct Authority a year ago that they would contact their borrowers with interest-only mortgages, the Council of Mortgage Lenders revealed.

The commitment, given by mortgage lenders to the FCA, was to contact interest-only borrowers whose mortgages are due to mature by the end of 2020 about how they plan to repay their loans.

The CML and lenders nevertheless recognise that “meeting this commitment is only the first part of an ongoing programme of communication with interest-only mortgage customers”.

Only notable exceptions in the communication programme were those with very small balances where there is little material risk, and those with whom lenders were already in contact, the CML said.

Martin Wheatley, FCA chief executive, said: “This forward looking and consumer-at-the heart type of action is a prime example of a model demonstrating good conduct outcomes and putting customers first; it’s good to see that real progress is being made.

“What I am particularly pleased with is how industry, regulator and consumer have come together to address this problem as one in a collaborative way. It’s too soon to declare success, but these are encouraging findings.”

Lenders have been using a variety of contact strategies. In addition to reminders and mailings requesting the customer’s written response, telephone calls, face-to-face meetings and home visits have been used.

Overall, around 30 per cent of customers contacted have so far responded.

At the beginning of May, the CML reported a “significant” reduction in outstanding interest-only mortgage debt. Between Q4 2012 to Q4 2013 there has been a 12 per cent drop – compared the same period a year earlier when there was a reduction of less than 2 per cent.

Based on a CML survey representing around 96 per cent of the market, at the end of 2013 there were an estimated 2.2m pure interest-only loans outstanding, and a further 620,000 part interest-only, part repayment mortgages outstanding on lenders’ books.

Compared with 2012 this represents a fall of around 300,000 pure interest-only mortgages, and around 90,000 part-and-part mortgages.

Paul Smee, CML director general, said: “We are pleased to report that lenders have met their initial commitment to contact interest-only borrowers whose mortgages are due to mature by the end of 2020. But we all recognise that this is just the start of a long term, continuous communication programme.

“If you have an interest-only mortgage due to end before the end of 2020 and you have not yet responded, it is important to communicate with your lender, even if you know your plans are on course.”