Interest Only – Comments on the FCA Report
02nd May 2013
The FCA today released their long awaited report into Interest Only mortgages and found that whilst approximately half of the roughly 2.6m borrowers with an interest only mortgage may face a shortfall, 90% of the circa 600,000 deemed at immediate risk do actually have a repayment plan.
Whilst it is of course concerning that there are many borrowers on interest only loans who have not as yet made any concrete provision to repay the loan, this is an issue that is containable and can be dealt with over the longer term.
The good news is that there seems to be no evidence of mis-selling and the majority of borrowers do understand that they have an interest only loan and all that entails. This, together with the length of term of the average mortgage, means that there is time to address any potential issues and the onus is on mortgage lenders to be flexible enough to assist those before problems occur.
Whether this involves moving borrowers on to part-repayment schemes, reviewing the standard age limits a loan can be extended past or being more flexible where current affordability calculations are concerned remains to be seen, but lenders do have the power to avoid future problems now.
All lenders are being urged to contact their customers now and engage in meaningful conversations to help borrowers to find ways to address any potential short-fall.
For many who are concerned the first port of call may well be an independent adviser who can look through all the options available to the borrower and assist in dialogue with their lender if needs be, but borrowers should not bury their heads in the sand and ignore this.
As for a “ticking-time bomb”, this seems wide of the mark as borrowers are aware of the product they have and have time to do something about it now.
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Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.