The interest-only mortgage market is to come under the spotlight once again as the regulator investigates whether lenders are acting in the best interests of consumers.
The Financial Conduct Authority (FCA) has today outlined which areas of the market it plans to focus on in the 2017/18 business year.
It will turn its attention to the interest-only mortgage market as many of these loans are due to mature in the next few years. During the term of interest-only mortgage loans, borrowers only repay the interest and then use savings, investments or other assets – known as ‘repayment vehicles’ - to pay off the mortgage at the end of the term.
However, there is a long-running concern in the mortgage industry that many people will be unable to pay back their interest-only loans and that lenders need to offer more support to these customers.
The FCA says many of these loans will begin to expire in 2020.
The regulator says: “Around 1.8 million UK home owners currently have outstanding interest-only mortgages (excluding buy-to-let), and many do not have an appropriate strategy to repay them.
“We will look at how firms treat borrowers whose interest-only mortgages are approaching maturity and their ability to ensure these customers are treated fairly.
“This will include those interest-only mortgages that are due to be repaid by 2020 – where borrowers have the least amount of time to find a solution.”
Once a popular product, interest-only mortgages have all-but-disappeared from the residential market in recent years. This has left many people with interest-only mortgages unable to switch to a new deal.
Smaller lenders, such as Shawbrook Bank, have launched mortgage products targeting these borrowers but mainstream support is still lacking.