FCA Sounds Warnings for Those on Interest-Only Mortgages

The Financial Conduct Authority has spoken out in an appeal to homeowners who have interest-only mortgages on their homes. The authority is concerned that many people could be heading for disaster by ignoring letters from their mortgage lender asking how they plan to pay off the outstanding debt. The FCA has confirmed there are 1.67 million mortgages in the UK today that qualify as either complete interest-only mortgages or part capital repayment mortgages. These account for 17.6% of all the mortgages currently outstanding. While you can still obtain an interest-only mortgage, they are very difficult to find. Stricter regulations brought in a few years ago have led to repayment mortgages taking the lion’s share of the market. As such, a greater percentage of interest-only mortgages are coming to the end of their terms in the coming years. The FCA estimates there will be three blocks of interest-only mortgages coming to fruition soon. Indeed, the first of these three blocks is occurring now. The next looks set to occur around 2027-8 with the final one occurring a few years later in 2032. How many people have made plans to pay off the original loan? “Some homeowners with interest-only mortgages have taken the time to develop a plan to ensure they have the required capital at the end of the mortgage term,” said Darren Pescod, CEO of The Mortgage Broker Limited. “However, there will be some who have delayed making those plans or have changed them at some stage. These are the people the FCA is concerned about. “Some may find they will have to sell their homes to find the cash they need to pay off the mortgage debt. The FCA believes many existing homeowners who are reaching the end of their mortgage terms will have benefited from a rise in equity. Some may consider equity release as a method for paying off their interest-only loan.” Don’t neglect the opportunity to talk to your lender That is the important message being shared now. The FCA is encouraging anyone who may struggle to pay off the mortgage debt to speak with their lender as soon as possible. There may be alternative options they hadn’t considered. The mortgage holder is still responsible for clearing the debt on time, and if that isn’t possible, alternative arrangements will need to be made. The closer it gets to the repayment date, the fewer options will be available for those who need them. “The onus is on doing something now,” Darren Pescod said. “This may well be a worrisome situation for some but delaying the decision-making process will only make things worse. This may be particularly true for those whose mortgages will fall due for repayment in 2027-8 or thereabouts. This group of people are not likely to be as affluent as the ones whose mortgages are falling due now. The sooner they face the situation and make suitable plans, the better the outcome could be. There may not seem to be a sense of urgency yet, but nothing could be further from the truth.”