The Financial Conduct Authority says it is to review lenders offering solely interest-only mortgages to home owners.
In its business plan for the coming year it says: “Around 1.8m owners currently have outstanding interest-only mortgages (excluding buy to let), and many do not have an appropriate strategy to repay them.
“We will look at how firms treat borrowers whose interest-only mortgages are approaching maturity and their ability to ensure these customers are treated fairly. This will include those interest-only mortgages that are due to be repaid by 2020 – where borrowers have the least amount of time to find a solution.”
No details have been released as to the nature of the review nor whether it is likely to trigger further restrictions on mortgage products.
In 2013 a number of lenders pulled out of the interest-only mortgage sector and the FCA told those firms remaining to have a strategy for managing borrowers unable to pay off their interest-only products at full term, by switching to full or part capital repayment.
The latest announcement by the FCA has been welcomed by Dean Mirfin, technical director at financial planning company Key Retirement.
“We estimate around 10,000 borrowers each year, between now and 2020, are coming to the end of their interest-only terms with shortfalls. Around 5,000 of those are expected to have no repayment vehicle at all. Many will end up selling their homes to repay their maturing loan, when actually they didn’t have to” says Mirfin.
“It is essential, for this first wave of maturities, that banks and other lending institutions take action sooner than later, these customers are the most vulnerable as they have little time to act” he adds.