The FCA says mortgage lenders will be required to set out their plans for dealing with the estimated 48 per cent of interest-only borrowers unable to fully repay their loans.
In a consultation on interest-only borrowing which launched this week, the FCA says it expects lenders to understand what repayment vehicles their borrowers have in place, as well as the size of any potential shortfall. Where a shortfall is identified, lenders will be required to alert borrowers “in sufficient time” for them to take action.
The FCA is proposing making lenders set out in writing how they will deal with interest-only borrowers with a shortfall who are coming to the end of their loan. Offering alternative options will not be mandatory but it has suggested lenders explain why certain options are or are not available.
FCA chief executive Martin Wheatley says: “Lenders, regulators and borrowers need to ensure that they grasp the nettle now before it is too late.”
Last year, Wheatley described interest-only mortgages as a “ticking timebomb” and new research from the FCA, also published this week, shows the size of the problem. The FCA predicts that of 2.6 million interest-only mortgages due for repayment over the next 30 years, 10 per cent – 260,000 – do not have a repayment vehicle in place.
Its review of consumer awareness suggests 37 per cent of interest-only borrowers believe they will be unable to fully repay their loans. However, the FCA says it believes this underestimates the problem and the real figure will be around 48 per cent. It places the average shortfall at £71,850 over the next 30 years.
London & Country associate director of communications David Hollingworth says: “ What consumers cannot do is just sit back and do nothing.”