The Financial Conduct Authority says there is no evidence of widespread misselling of interest-only mortgages after research shows just 13 per cent of borrowers say they did not know they needed a repayment plan when they took out their loan.
The regulator has spent the last year conducting a thematic review on interest-only mortgages to understand the true extent of the problem of people being unable repay their loan in full at the end of the term.
It has today published its findings today in two reports, one of them a survey of 1,103 people measuring consumers’ readiness to repay the capital due and the other measuring the stock of outstanding interest-only mortgages.
As part of the survey, consumers were asked “When you took out the mortgage, did you know that you needed a repayment plan that would repay the capital and that this was separate to the interest payments?”.
Around 81 per cent of respondents replied “yes”, 13 per cent said “no” and 6 per cent replied that they were not sure.
Moreover, 2.5 per cent of respondents replied that they did not know about the need for such a plan at the point of purchase and still do not have one.
The FCA also found that 90 per cent of the 2.6 million interest-only mortgage customers in the market have repayment strategies in place.
Customers’ awareness of the need for a repayment vehicle has remained broadly similar no matter when the mortgage was taken out.
Some 82 per cent of borrowers who took out an interest-only mortgage up to 1990 said they were aware of the need to have a repayment plan in place, increasing to 83 per cent for mortgages taken out between 1991 and 1999. Awareness dipped to 76 per cent between 2000 and 2004, before increasing to 80 per cent between 2005 and 2007 and 88 per cent for loans taken out between 2008 and 2012.
When asked if the figures showthat there was little evidence of interest-only misselling, FCA manager of mortgage thematics Meg Gay says: “Do we think there has been any widespread problem? No, we do not. Obviously within any market there might be isolated cases of poor practice and that is why we have the complaints process that we have if anyone feels they were genuinely misled.”
Association of Mortgage Intermediaries chief executive Robert Sinclair says: ”In this substantial study of the issues surrounding the maturity of interest-only mortgages, the FCA has not found evidence of systemic mis-selling in the residential interest-only market.
”It has found that the vast majority of consumers who took out these products understood the terms associated with the loan. However, some customers will need support to ensure that they are able to appropriately manage the maturity of their interest-only mortgage.”
Table: Proportion of interest-only purchasers who were unaware, at the point of purchase, that they needed a separate repayment plan (by bands of year mortgage arranged):