There has been some scaremongering within the industry and talk of interest-only mortgages being the next mis-selling scandal, but is this really an area of impending doom? The FCA is right to be concerned about interest-only mortgages. They estimate that one in five mortgage customers have an interest-only loan. There is a clear risk that customers may not have adequate repayment strategies in place when their mortgages come to mature. Rather than waiting for future payment shortfalls, the FCA is encouraging lenders to act now. With the correct engagement strategy in place, the risk of customers losing their homes can be minimised.
This focus by the FCA is timely. It is anticipated that the majority of interest-only loans will mature from 2027 onwards. Of those which mature between 2027 and 2032 significant numbers of customers will be over the age of 65 when the mortgage matures. One of the key messages of the thematic review is that customers who engage earlier will have a wider range of affordable repayment options.
It's all very well saying lenders need to treat customers fairly and start communicating early, but how do they get customers on board? One of the key obstacles for lenders is a lack of customer engagement. The FCA employed an independent research agency, Kantar Public, to look at why customers do not engage. The research and technical report by Kantar Public is publicly available. Lenders should take the time to read these documents when formulating contact strategies. The report looks at a whole range of subconscious, moral and emotional reasons for low engagement: where customers don't know how to respond they unconsciously don't. The report also looked at how customers felt about their repayment options: where customers felt insecure about their options they didn't want to confront their situation, hence their lack of response.
The FCA has encouraged lenders to use this research to develop future contact strategies. They also encourage customers to contact their lenders, and have produced a leaflet highlighting the benefits of doing so.
Whether you're a lender or a customer, act now.