Homeowners with interest-only mortgages are being urged to contact their lender after the City watchdog found that many are yet to discuss repayment options and raised concerns that some people could lose their homes.
A fifth of all mortgage-holders have an interest-only mortgage, which enables borrowers to pay off only the interest on a loan until the end of the term, typically 25 years, when the capital must be repaid as a lump sum.
There are 1.67 million interest-only mortgages in the UK, accounting for nearly a fifth of all mortgages. Thousands of the loans, whose popularity peaked in the 1980s and 1990s, are about to mature as borrowers approach retirement.
The Financial Conduct Authority, which conducted a review of interest-only mortgages in 2013, found that although lenders were writing to people before their loans had reached maturity, the letters largely were being ignored.
Jonathan Davidson, executive director of supervision for the FCA, said: “We are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and may be at risk of losing their homes.”
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According to the FCA, about a tenth of interest-only mortgage holders have no plan in place to pay off anything at all. The watchdog identified three groups of borrowers whose loans were nearing “maturity peaks.” One peak is taking place now; others are due in 2027-28 and 2032.
Remortgaging or taking out a new loan were options, but Steve Wilkie, managing director of Responsible Equity Release, warned that many interest-only mortgage holders might “find lenders aren’t knocking down their door to lend to them”.