On Tuesday 29 January UK Finance held a parliamentary drop-in event, together with Stephen Lloyd MP, to help raise awareness among parliamentarians of how mortgage lenders are helping their borrowers with interest-only (IO) mortgages.

Background

The mortgage industry as well as regulators are highly conscious of the issues and concerns affecting IO borrowers who may not have a repayment plan to clear their mortgage.

In 2014, mortgage lenders began a coordinated industry initiative to contact all IO borrowers whose loans were due to mature before 2020. The aim was to ensure customers were on track to repay their loans and, if the borrower was experiencing problems, work to help find an affordable solution.

Thanks in part to increased communication between lenders and borrowers, the number of customers with IO mortgages has decreased significantly in recent years. In 2012, there were some 3.2 million IO mortgages. By 2017, the number had come down to 1.7 million. In the majority of these cases, lenders were able to help borrowers come to an affordable solution which allowed them to pay the capital. Last year, the FCA acknowledged this development, noting that all lenders they had reviewed for their IO thematic review had made progress with their strategies in dealing with this group of customers.  

Mortgage lenders now recognise that many borrowers who still hold IO mortgages may not have a clear repayment plan and may need additional help to get them on track. A variety of options exist to help these customers, ranging from (but not limited to) rate switches, to occasional overpayments, to newly available products which can help these individuals remain in their home.

The introduction of retirement interest-only (RIO) mortgages in 2018 and the increasing popularity of lifetime (or equity release) mortgages means that households who are not able to afford to repay their capital outright now have alternative solutions which may allow them to remain in their property. Over a dozen lenders now offer products in these markets, and we expect even more to launch products this year.

To increase awareness of the options and to help encourage IO borrowers to speak to their lenders, UK Finance has produced a leaflet outlining how customers can understand and take control of their circumstances. The leaflet, available for download below, includes real-life case studies of IO customers who came to arrangements with their lenders which enabled the customers to remain in their home on affordable repayment terms.

Call to Action

It is critical for impacted borrowers talk to their lender about their individual circumstances as early as possible, to ensure the best solution is reached. By having a frank conversation about the borrower's financial circumstances and future plans, lenders can usually find a way to help.