BANKS will today be ordered to check up more closely on the financial state of customers with interest-only mortgages, the new City watchdog’s first illustration of how it will use its powers to act pre-emptively.
The Financial Conduct Authority’s (FCA) review of the market found no evidence of widespread mis-selling. But it did find more than 1.2m homeowners with big holes in their repayment plans which could lead to problems over the next 20 years.
As a result it has issued new guidance to lenders, telling them to contact customers more often to review their finances, as well as laying out how they should treat those who cannot pay.
Ten per cent of the 2.6m customers have no plan in place to make repayments when their loan matures, while 48 per cent have plans which will not cover their payments.
Over the next 30 years the average shortfall comes in at £71,000.
Lenders have been told to contact all their customers to check they are on top of their loans and offer repayment suggestions, beginning with those that mature before 2020 as those customers have the least time to act.
The options could include asking customers if they would like to switch to repayment mortgages, if they need to increase the term of their loan or if they need further advice on financial planning.
Lenders will also offer more options on maturity, with repossession only as a last resort.
“By acting now we are aiming to nip this problem in the bud,” said FCA chief Martin Wheatley.
“Lenders have volunteered to contact their most at-risk customers with a wake up call to highlight what they need to do without delay.”