As part of the research carried out by consultancy GFK – commissioned by the FCA as part of its thematic review of interest-only mortgages – the FCA revealed that 13 per cent of consumers claimed they did not understand the terms of repayment on their interest-only mortgages.
However, just 2.5 per cent said they were not aware at point of sale and without a repayment strategy in place.
Mr Millmore said: “What is significant is that this leads to the question of why they did not understand, and whether they were mis-sold, with the strong possibility that many will believe that they were.
“The problem in the past has been the cost of taking lenders and intermediaries to court. But since last month, solicitors can undertake work on a true contingency basis, sharing in recoveries, which makes the prospect of legal action more likely, in my view, if groups of borrowers were affected in the same circumstances.”
He added: “The FCA report suggests that interest-only loans could represent a similar issue to payment protection mis-selling, with the potential to secure very significant pay-outs.
“In turn that could lead to criticisms of claims companies and lawyers if it is seen as a further example of the excesses of the compensation culture.
“If 13 per cent of that group alone believe they were not properly informed about the risks and their responsibilities, that is 78,000 people with a potential claim. But there are of course many more people with interest-only loans maturing beyond 2020.”
Adviser view
Robert Sinclair, director of the Association of Mortgage Intermediaries, said: “I’m not sure whether that would constitute enough people for a group action. For most of the 13 per cent, many will have changed circumstances, so it’s not necessarily down to advice at the time, but clearly some do need help.”
| Background |
• 81 per cent of interest-only borrowers said they understood the need for a repayment plan when they took out their mortgage. • 13 per cent did not know they had to organise a repayment plan. • According to the FCA, one third of the shortfalls likely by 2020 are expected to be more than £50,000. |
