Mortgages  

FCA: No need for action on interest-only ‘timebomb’

FCA: No need for action on interest-only ‘timebomb’

The FCA has denied the need for intervention in the interest-only mortgage market despite warnings that 1m mortgage holders face repossession because they have no way of paying off their loans.

Last week research by Citizens Advice estimated that nearly 1m people have interest-only mortgages but have made no arrangements to pay them off when their terms end.

But Linda Woodall, FCA acting director of supervision, retail and authorisations, said the regulator would only take action if it felt consumers were being treated unfairly – something it does not think is the case.

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She said: “The concerns that have been raised are that there will be a lot of homeless people and I understand that, but lenders are exercising forebearance.

“One of the messages we have given out is that if you have an interest-only mortgage and you are concerned about your ability to pay, do not stick your head in the sand: engage with your lender.

“Whether we would take action or not depends if we get a sense that consumers are being treated unfairly and we get the sense at present that is not the case.” She said the majority of lenders were offering term extensions to those who are struggling to pay off their interest-only mortgage.

There are 3.3m mortgage holders in the UK who have interest-only products. Citizens Advice commissioned YouGov to carry out a poll of 2,317 people, the results of which suggested that 1.7m of these people have no linked repayment vehicle such as an endowment or Isa. Some 934,000 figure have made no arrangements for repayment, and 432,727 have not even thought about how they will repay the capital.

Meanwhile, equity release lending, often flagged as a solution for those struggling with an interest-only mortgage, has surged recently, with lending in the second quarter of 2015 reaching £384m – the highest of any quarter since records began in 2002.

In 2012 rules were tightened so that lenders could only enter into an interest-only mortgage after obtaining evidence of a repayment plan and ensuring that plan was “credible”. This has resulted in a major drop in the number of the products sold.

According to the CML, the volume of new interest-only mortgages has declined substantially from its peak in the mid-2000s, 104,100 in 2007 to 1,700 last year.

According to FCA figures, there will be 40,000 interest-only mortgages maturing each year between 2017 and 2032 where the borrower is aged 65 or above.

Adviser view

Jane King, a mortgage broker with London-based Ash Ridge Private Finance, said: “I have attempted to have the terms extended on two interest only mortgages in the past couple of weeks because the clients didn’t want to pay it off and in both cases the lenders have asked for an onerous amount of information.

“In my experience lenders are being quite difficult. I think they want to clear it off their books.”