FCA report recommends help for interest-only prisoners
Local independent financial adviser, Steve Embrey reviews a recent report by the UK’s financial regulator which highlights the need for help for those borrowers trapped in expensive interest-only mortgages:
The Financial Conduct Authority (FCA) has continually warned that hundreds of thousands of homeowners could be at risk of losing their homes by ignoring how they will pay off their mortgage.
Nearly one in five mortgage-holders has an interest-only home loan, meaning they would need savings or other funds to pay a final lump sum.
Interest-only deals allow borrowers to pay off the amount borrowed only when the mortgage term ends, usually after 25 years, but there is concern that a host of homeowners do not have plans in place to pay the final bill.
The FCA said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.
An investigation into the efficacy of the UK’s mortgage market has revealed that many of these long-standing borrowers have kept up-to-date with their mortgage payments but were unable to get a new mortgage deal. The FCA is keen to explore ways that the industry can help them.
Some mortgage holders found themselves trapped in their current deal when stricter affordability checks on mortgage applications were brought in during 2014.
These “mortgage prisoners” were unable to move to a better deal when their existing mortgages switched back to the more expensive standard variable rate, even if they could meet the payments.
The FCA said it had identified about 150,000 such customers. Of these, about 30,000 were with authorised mortgage lenders, while about 120,000 had mortgages held by non-regulated firms – which include some previous Northern Rock and Bradford & Bingley customers.
The regulator said it intended to explore options to help these customers, “for example, an industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments”.
There are options open to people in this situation and securing advice would be the most appropriate first step. An independent financial adviser is best placed to access the raft of products across the spectrum and will find the most appropriate product for each individual’s needs.
For more information on mortgages and schemes that can help, contact Steve on 01743 282222 or email firstname.lastname@example.org