The FCA has published Thematic Review 18/1:The fair treatment of existing interest-only mortgage customers (TR18/1). In TR18/1 the FCA shares the results of its thematic work in which the regulator examined how lenders were treating customers who have interest-only mortgages. Specifically, the thematic review looked at how lenders are working to help customers avoid the potential harm of non-repayment at maturity.
Key messages in TR18/1 include:
- all lenders sampled in the FCA’s review had made progress in the fair treatment of interest-only mortgage customers. Strategies exist to contact customers with interest-only mortgages, understand their repayment plans and provide appropriate solutions where no suitable plan is in place;
- the repayment options recommended were likely to be fair in almost all cases and that the potential harm caused by non-repayment at maturity was reduced. However, the processes customers had to follow were often time consuming;
- all the lenders in the sample understood the value, volume and maturity profile of their interest-only mortgage book. A few also had detailed information about repayment plans and customer response rates, and had undertaken segmentation and analysis of the potential risks which could help shape communications;
- all the lenders in the sample sent letters at regular intervals during the term of the mortgage and some also used other communication methods to try and reach their customers;
- most lenders provided a wide range of options and adopted a flexible approach to help customers who are unable to repay their mortgage at maturity;
- some lenders used staff without mortgage advice qualifications to act in a ‘triage’ function, to gather information and refer customers for advice. The FCA found in some cases that having spoken with such staff, customers may have believed that their repayment plans were adequate when they could have benefitted from advice; and
- customers are responsible for the full repayment of the capital when the interest-only mortgage matures and the regulator acknowledges that lenders aren’t obliged to offer options to those who are unable to repay at maturity. However, the FCA expects customers to be treated fairly as outlined in Principle 6 of the FCA’s Principles for Businesses. The guidance issued in Finalised Guidance 13/7 sets out some of the ways lenders could meet Principle 6.
The FCA also found that customers who engaged with their lender earlier in the term of the mortgage and who did not have a suitable repayment plan had a wider range of affordable repayment options available than those who made contact later. Alongside TR18/1 the FCA is publishing a customer communication called, Interest-only mortgages: Act now and talk to your lender, which sets out how customers might benefit from talking to their lender early.
View FCA thematic review of interest-only mortgage customers, 30 January 2018
View Interest-only mortgages: Act no and talk to your lender, 30 January 2018