FCA warns on ‘overly optimistic’ mortgagors

AUGUST GRAHAM

ONE IN 10 interest-only mortgage holders might be “overly optimistic” about paying off their debt when the time comes, the City watchdog has suggested.

The Financial Conduct Authority (FCA) urged those with interest-only mortgages to discuss options with their banks.

People with those loans pay only the interest on their loan every month, rather than paying the interest and also paying down their loan. However, by the time the period comes to an end they need to pay off the loan.

It means that their monthly payments are smaller, but as a whole the mortgage will be more expensive as they pay interest on the full amount they borrowed for the full term of the mortgage.

Research commissioned by the FCA showed that 82 per cent of borrowers were confident that they could repay what is left on their loan at the end of the mortgage term.

“However, the research suggests this may be overly optimistic – while 36 per cent of borrowers expected some shortfall, modelling suggests this could be closer to 46 per cent,” the FCA said yesterday.

“Borrowers without a repayment plan are encouraged to speak to their lender to discuss their options,” it added.

Data crunched by the FCA showed that there were 774,000 purely interest-only mortgages at the end of June last year. This is around half the number that existed in 2015, the FCA said.