The Financial Conduct Authority has confirmed it did not uncover systemic mis-selling in the residential interest-only market, but commentators have warned that 320,000 borrowers without an adequate repayment plan have been revealed as facing a financial crunch over the next 30 years.
The FCA’s long-awaited review into the interest-only mortgage market, published today (2 May), found that 90 per cent of customers had a repayment strategy in place.
It found that 37 per cent of consumers had a “definite or possible” shortfall based on their own estimates, with the average owing approximately £22,000.
The modelled data, carried out for the regulator by research company GfK, also revealed that 34 per cent of mortgages that will mature before 2022 could experience a shortfall of £50,000 or higher.
Dean Mirfin, group director at Key Retirement Solutions, warned that the “interest-only time-bomb” could still be a “slow motion disaster” for lenders and borrowers.
He said: “At least 60,000 borrowers facing capital repayments by 2020 without any means of doing so and another 260,000 facing the same financial crunch over the next 30 years.
“We have for some considerable time been trying to focus both lenders and borrowers alike on the solutions and not the problem. It is imperative that all borrowers have access to the right advice to consider thoroughly all of their options before it’s too late.
“Lenders must not allow borrowers to bury their heads in the sand any more. Advice for many is what is needed now ahead of the problem.”
Robert Sinclair (pictured), chief executive of the Association of Mortgage Intermediaries, added that the FCA has found that the vast majority of customers who took out interest-only loans understood the terms.
However, he highlighted that some customers will need support to ensure that they are able to appropriately manage the maturity of their interest-only mortgage.
Mr Sinclair said that although intermediaries may be the first point of contact for some customers, ultimately this is a “lender issue”.
He said: “To ensure that consumers can make the required adjustments to their mortgages, lenders will need to be flexible in the way they consider affordability assessments.
“It may not be appropriate for consumers who are looking to move to a capital repayment loan, fully or in part, to be assessed through the current affordability models being employed by lenders.
“Many of these are set to limit new business flows and might not work in the consumer’s wider best interests.
“FCA clearly places the onus on the consumer to repay, however lenders must provide support to assist customers who have maturity issues.”
The Building Societies Association added that those interest-only borrowers with mortgages due to mature by the year 2020 can expect to be contacted by their lender in the next 12 months if they haven’t already heard from them.
A spokesperson said: “These communications have been on top of the normal annual reminder which is part of a borrowers’ annual mortgage statement. Ultimately the responsibility to repay a mortgage remains with the borrower.
“But building societies and other mutual lenders will deploy all the tools they have to help anyone who has an interest only mortgage with a shortfall. This will only work if people respond to the communications they receive and engage early with their lender.”
