Citizens Advice warns almost one million homeowners face repossession as they have no way of paying off their interest-only mortgage when their loan terms ends.
Research carried out by YouGov for Citizens Advice suggests that out of the 3.3 million borrowers who have interest-only mortgages, 1.7 million have no linked repayment vehicle such as an endowment or Isa.
Citizens Advice estimates that 934,000 borrowers have no repayment plan, while 432,727 have not thought about how they will repay the capital.
The FCA clamped down on interest-only mortgages as part of the Mortgage Market Review, and lenders have adopted forbearance strategies for those in arrears such as extending the mortgage term and giving homeowners reasonable time to sell.
But Citizens Advice warns interest-only borrowers at the end of their term are not being offered the same protection.
Chief executive Gillian Guy says: “People buy a home for stability – but interest-only mortgages have forced many into a financial black hole.
“It is good rules around these mortgages have changed, but there are many people who previously took out these products and face losing their home.
“Lenders have to exhaust all other options when borrowers get into arrears – it’s time to level the playing field so that interest-only customers get the same protections when their mortgages mature.”
Following an FCA thematic review, lenders pledged to contact 800,000 interest-only borrowers due to reach the end of their mortgage term by 2020. Last June, it emerged that just 30 per cent of those borrowers, or 240,000, responded to the contact exercise.