Bob Hunt is chief executive of Paradigm Mortgage Services
The FCA’s thematic review into interest-only mortgages has now been completed and, quite frankly, it shows up some of the hysteria surrounding the so-called ‘mis-selling’ of the product for exactly what it is and was, an attempt by claims management companies to look for the ‘next big thing’.
In this regard the headlines will tell you everything you need to know about whether the FCA deem mis-selling to have taken place – ‘No evidence of widespread mis-selling of interest-only loans’ neatly summing it up.
The question was asked of all consumers whether they knew they needed a separate repayment plan in place when taking out an interest-only mortgage and 81% said they did. While 13% said they didn’t and 6% weren’t sure I hope this puts to bed the notion that advisers (and lenders) have been systematically withholding that information from consumers or indeed were not being clear enough when discussing interest-only.
The other major point to outline is that 90% of the 2.6 million interest-only mortgage customers have a repayment strategy in place and only 2.5% of the respondents to the FCA’s survey said they didn’t know they needed a repayment plan and still currently don’t have one now. One would suggest that following the media coverage of this report anyone who doesn’t have a plan in place seriously needs their head examined, and I suspect there is an opportunity for brokers and advisers to make sure they can provide the necessary support, information and products to ensure this number continues to reduce.
One might even go so far to say that there is a certain number of those 13% who said they weren’t aware they needed a repayment plan who are being shall we say, ‘economical with the truth’.
We know only too well that some consumers have always been aware of the reality of ‘interest-only’ borrowing and have either chosen to ignore the need for a capital repayment plan or simply assumed that the money would appear from somewhere – an inheritance for example or an increase in house prices - in order for them to be able to ‘take care of it’ much further down the line.
While it is somewhat satisfying to hear that our industry has not been found wanting in this regard, it is still obviously a concern to hear so many interest-only mortgage customers could be facing significant shortfalls in their attempts to pay off the capital.
The shortfalls suggested by the FCA are now insignificant either – the regulator expects the average shortfall to be £71,850 over the period to 2042, while it drops slightly to £56,200 for those who are due to pay off their mortgage by 2022.
However, they do not tally with customer’s own anticipation of what their shortfall may be – this was, on average, put at the £22k mark and it was suggested that most would cover this via savings, downsizing or remortgaging.
Even these answers suggest an interest-only customer base that is aware and actively engaged with the need to find enough money to pay off the capital or to have options in place now and leading up to the end of the mortgage term.
This is another positive and it also gives advisers and intermediaries the opportunity to engage with their clients who have interest-only mortgages.
Lenders have to communicate with those interest-only borrowers when they are coming to the end of their loans however it’s not mandatory to set out the available options – this is clearly where brokers can prove their worth and pick up additional business.
Interest-only borrowers receiving these lender communications will be looking for options and clearly the advisory profession should be at the forefront of delivering solutions particularly for those who have plans in place which may not pay off the capital.
The results of this thematic review offer positive news in the shape of the lack of mis-selling evidence and it also delivers a strong opportunity for brokers to engage with their existing and new interest-only borrower clients.
This will be front-page personal finance news for some time and advisers need to put their services in the shop window in order to help the many thousands of borrowers affected in this way.