Lenders have committed to contacting everyone with an interest-only mortgage maturing before the end of 2020 over the next year to enquire about their repayment plans.
The Financial Conduct Authority has today published guidance consultation focussed on dealing with the estimated 48 per cent of interest-only borrowers who may have a shortfall when their loan matures.
The guidance proposes to require lenders to set out how they plan to deal with borrowers who have a potential shortfall, including their communication strategies to alert customers of the need to sort out a repayment vehicle.
While the consultation does not close until 3 June, lenders have already committed to contacting borrowers with mortgages maturing before the end of 2020 over the next 12 months.
There are an estimated 600,000 borrowers with interest-only loans that will mature before 2020, while the FCA estimates that around half of the 2.6 million interest-only loans outstanding will have a shortfall. A third of these will have shortfalls of over £50,000.
The aim is not to force borrowers to take action but to ensure they are aware of their mortgage payment position and have enough notice to put together a repayment plan to avoid a shortfall.
Council of Mortgage Lenders director general Paul Smee says: “Lenders recognise that they have a valuable role to play in helping their customers to plan ahead, and to take action in good time to reduce the risk of being caught short when the time comes for the mortgage to be repaid.
“We are working as an industry to ensure that good, pre-emptive communication with interest-only mortgage customers is the norm. Most people, even if they have not yet done so, have time to plan a satisfactory strategy for when their mortgage reaches maturity.”
Building Societies Association head of mortgage policy Paul Broadhead says: “Those interest only borrowers with mortgages due to mature by the year 2020 can expect to be contacted by their lender in the next 12 months if they have not already heard from them.
“These communications have been on top of the normal annual reminder which is part of a borrowers’ annual mortgage statement. Ultimately the responsibility to repay a mortgage remains with the borrower. But building societies and other mutual lenders will deploy all the tools they have to help anyone who has an interest only mortgage with a shortfall.”
The CML has also been working with the Money Advice Service on an action plan guide which provides a checklist of actions for people with an interest-only mortgage, with the aim of avoiding a shortfall when the loan matures.