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Britannia alert for interest-only clients

Society drops charges for borrowers switching to repayment mortgages

Britannia Building Society is contacting all its interest-only mortgage customers to check they have or are aware that they need appropriate repayment vehicles.

The move follows research by the Council of Mortgage Lenders, which shows that more than 200,000 borrowers have taken out interest-only mortgages without setting up a repayment vehicle.

Britannia has contacted 1,000 borrowers in a pilot and 53 per cent say they do have a repayment vehicle in place but 43 per cent did not respond. Of the 53 per cent with a repayment vehicle, 24 per cent have asked Britannia to contact them to discuss whether it is adequate.

The society is dropping all charges for interest-only customers who want to switch to a repayment mortgage.

Head of credit risk Rajeev Sharma says: “We hope that by championing the cause in the media and improving our customer contact programme, the remainder will get in touch and take action.”

Many lenders ask borrowers taking out interest-only mortgages on their application forms if they have a repayment vehicle in place but do not ask for proof. Reminders are also included on annual statements.

The FSA is investigating the situation and spokesman Robin Gordon Walker says the results of its investigations into the sector will determine whether it carries out a consumer-awareness drive.

Interest-only is not specifically named in Mcob rules but Gordon Walker says lenders have a duty to ensure that borrowers can repay.

CML spokesman Bernard Clarke says: “The onus will remain on borrowers to heed the warnings they receive and make sure that they have their own plans in place to repay the capital they borrowed.”

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