Newsflash: Helping lenders to help interest-only customers

Print publication

13/02/2018

Justin Coley, Director and Walker Morris’ Head of Recoveries, explains the FCA’s recent recommendations in connection with the fair treatment of interest-only mortgage customers, and explains the proactive steps that lenders should be taking now.

Fair treatment of interest-only customers

The Financial Conduct Authority (FCA) has published a thematic review report on the fair treatment of interest-only mortgage customers [1] following concerns that many may have a shortfall at maturity and be unable to repay their loans.

The review covered 10 lenders that represent around 60% of the 1.67 million interest-only mortgages in the market and found that:

  • Lenders have made progress in the fair treatment of interest-only mortgage customers. In particular, strategies exist for contacting interest-only customers to discuss and understand their plans for repayment, and for providing appropriate solutions where necessary.
  • Recommended repayment options were almost always fair and reduced potential harm caused by non-repayment at maturity, however those options often involved customers having to follow challenging processes.
  • Lenders generally understand the value, volume and maturity profile of their interest-only mortgage book. Some lenders go further and analyse detailed information about repayment plans and customer response rates, which could help to direct communications and solutions with customers.
  • Lenders are writing to customers before mortgage maturity, but customer engagement is low. Customers who engage with their lender earlier in the term of the mortgage and had a wider range of affordable repayment options available. The FCA has therefore also published a customer information leaflet and its research and recommendations for helping lenders to improve customer-contact strategies.

WM Comment

Interest-only maturities are due to peak in 2020, 2027/28 and 2032. Lenders should therefore be contacting the very significant numbers of customers whose mortgage terms expire in 2020 within the next twelve months, and would therefore be well-advised to consider, now, the best way to do that.

To complement the FCA’s recommendations, Walker Morris’ Banking Litigation team offers lenders a customer-engagement service that consists of a series of practical steps aimed at establishing a productive dialogue between lenders and their customers. In addition, the service produces documented evidence of the lender’s positive and proactive approach with their customer, which the lender can later rely on in the event that a possession claim for mortgage breach needs to be pursued.

For further information or assistance on this or any other lender-services issue, please do not hesitate to contact Justin Coley or any member of Walker Morris’ Banking Litigation team.

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[1] See FCA finalised guidance FG13/7

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