Facebook
Twitter
YouTube

FCA is "guilty of scaremongering" over interest-only mortgages

Monday 13th May 2013

The Financial Conduct Authority (FCA) has been accused of “scaremongering” when it comes to dealing with outstanding interest-only mortgages.

Last week, the FCA warned that almost half the 2.6 million or so UK householders that have interest-only mortgages would not have savings or other funds to cover the final bill at the end of the tenure. Interest-only mortgages represent approximately a third of all UK mortgage holders.

With these mortgage holders only paying enough to cover the monthly mortgage interest on the amount borrowed, the average shortfall is £71,000 per person, according to FCA research.

The FCA, the successor of the Financial Services Authority as the sector's watchdog, commissioned research to give a clear indication of what borrowers face when mortgages mature between now and 2041.

But Graham Lock of House Network said that some homebuyers are wise to select interest-only mortgages, rather than pour money down the drain by renting property.   

“People use interest-only mortgages to get on the ladder and they can choose to switch to a repayment option at any time once it becomes affordable,” said Lock.

He continued: “Wage inflation will take care of most of this added with the fact that most of us will work until we're 70 means there is plenty of time to switch to repayment in the future.”

Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA), added: “By confirming that nine in every ten interest-only (IO) borrowers have a repayment strategy in place, the FCA’s research should put an end to misguided reports of a mis-selling ‘scandal’ when the market boomed between 2002 and 2007.

“Having said that, as both the Experian report for the FCA and the GfK report shows, there are issues for the industry to deal with.” 

Market research firm GfK NOP questioned 1,103 interest-only borrowers to consider how prepared they were to repay their loans.

The study found that 37% of interest-only mortgage faced a shortfall in their plans to pay back the lump sum of the home loan, based on their own calculations.

But the FCA believes that many people underestimated the financial problem and it believes 48% of holders of such mortgages face a shortfall.

Martin Wheatley, Chief Executive of the FCA, said: “My advice to borrowers is not to bury their head in the sand. This report is a call to action.”

              

comments powered by Disqus
Premium Articles
Sign up
Live Chat