Independent review and analysis

Interest-Only – still a challenge?

The FCA announced in its 2017/18 business plan that it will investigate lenders with interest-only mortgage books. The aim is to make sure customers are being treated fairly.

The business plan says: “Around 1.8 million UK home 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”.

Borrowers with the least amount of time left to find a solution – those with loans that are due to be paid off by 2020 – will create a real challenge. There are around 450,000 interest-only mortgages in this category with total balances outstanding of around £50 billion. Conversely, a third of interest-only books are not due to mature until the 2030’s – so there is some time for people in that category to find a solution.

For everyone involved in the market, a customer contact strategy is essential. Apart from the obvious commercial interest of lenders wanting their money back, there is regulatory pressure on them to ensure borrowers are treated fairly and to prove there are documented strategies of proactive customer engagement in place. At the time of origination there may not have been the need to obtain evidence of how the loan would ultimately be repaid, but lenders must now come to terms with rule changes and help find suitable solutions.

Rockstead has experience in reviewing pools of interest only mortgages, evaluating what actions have been taken during the life of the mortgage and assessing the associated risks. If you are a buyer, seller or holder of mortgage assets, you would benefit from a conversation with us – please get in touch.

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