Lenders told how to handle interest-only mortgage customers

In a 19-page guidance note, the FCA stated to demonstrate this in the context of existing residential interest-only mortgages, lenders could do the following:

A) Have a written strategy setting out the firm’s policy and procedural framework for managing mortgage loans that may not be repaid in full at the end of the term.

B) Consider what options can be offered to interest-only customers, either during the mortgage term or at maturity, demonstrating why the firm offers some options and not others.

C) Provide procedural guidance for front-line staff on how to execute the firm’s policy with appropriate monitoring to ensure fair and consistent consumer outcomes.

D) Collate enough management information to enable the firm to monitor its interest-only back book and review the performance of mitigation actions taken during the mortgage term or after maturity.

To protect consumers, lenders were told they should:

A) Communicate early and frequently according to the potential risk of non-repayment within the firm’s mortgage book, communicating more regularly as customers approach the end of the mortgage term.

B) Give customers enough time to consider maturity options, especially if the firm’s range of options is limited or if customers must meet specific criteria to be eligible; customers may wish to consider other options and should be given enough time to do so.

C) Assess affordability if any variation to an existing mortgage significantly increases the monthly payment or where the revised terms extend the loan into retirement. Some interest-only customers may be unable to change their mortgage or move to a different provider. Firms should be able to demonstrate how they have complied with principle six (customers’ interests) in their treatment of such ‘trapped’ customers. For instance, they should not unfairly charge them a higher rate of interest than other customers to exploit the fact that they are unable to exit the mortgage.