Lenders hit back after CAB interest-only warning

Lenders hit back after CAB interest-only warning

Both the Building Societies Association and the Council of Mortgage Lenders have claimed massive steps have been made to help interest-only borrowers, following Citizens Advice warning many could be left homeless.

This morning the Citizens Advice Bureau stated around a million people could have their homes repossessed because they have no way of paying off their interest-only mortgages.

But Paul Broadhead, head of mortgage policy at the BSA, said it is never too late for interest-only borrowers to start talking with their lender if they have concerns about how they will pay off the remaining balance of their mortgage.

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“Even prior to the publication of the FCA’s interest-only report in 2013, building societies had been getting in touch with their interest-only borrowers and this active contact programme continues to this day.

“These communications have been on top of the normal annual reminder which is part of a borrowers’ annual mortgage statement.

“The good news is that for many borrowers there is time to take action to deal with any gap. To help, lenders have a range of tools available. These include changing a mortgage to a part or full capital repayment loan, extending the term and accepting overpayments.

He added that the sooner a borrower engages with their lender the more options they will have to deal with any shortfall.

A spokesperson for the CML agreed that for many years, lenders have been repeatedly seeking to contact individual interest-only borrowers to remind them to keep their repayment plans under review.

“More recently, lenders have worked on a major project with the FCA focusing on communicating with all those customers whose loan is due to be repaid by 2020.

“While more work is needed to encourage interest-only borrowers to focus on their plans to repay, more than 80 per cent who responded to the 2020 initiative have a repayment plan in place.

“The number of interest-only mortgages is continuing to fall as borrowers pay off existing loans or switch to a repayment option and, over the last two years, the number has declined from 3.2 million to fewer than 2.5 million.

The CML noted that borrowers should not ignore attempts to communicate with them, pointing out that the lender is trying to help and reduce the risk of shocks at the end of the mortgage term.

“Although a borrower who is unable to repay the mortgage at the end of the term is not equivalent to one who unpredictably falls into arrears during the mortgage term, lenders will try to work with individual borrowers to explore the options available and avoid repossession if possible.”

Ray Boulger, senior technical manager at broker John Charcoal, said that it is very important to talk about repayment strategy, not repayment vehicle.

“There are various options, you could switch to a lifetime mortgage, equity release or the other option is selling properties will be one strategy, those people with other assets will have more choices than those people who don’t.