Interest-only mortgages were ‘not missold’
The Financial Conduct Authority (FCA) has said there is no evidence that the misselling of interest-only mortgages was widespread.
An interest-only mortgage means the homeowner makes monthly repayments that just cover the interest on the amount borrowed but those repayments don’t chip away at the actual loan. About a third of all UK mortgage holders hold an interest-only mortgage.
The full amount of the home loan should be paid back when the mortgage term matures – usually after 25 years – using savings or other funds. Many people have had a mortgage backed by an endowment policy, where regular savings are invested, but when these don’t perform as well as expected some interest-only mortgage holders don’t have enough to pay off the full amount.
The controversy stems from the fact that around 600,000 homeowners will have to repay their interest-only mortgage before 2020 but half will not have enough money to pay the loan back in full, according to FCA research.
Although this is may be worrying for some, the industry watchdog has judged that there was no evidence people misunderstood the sort of mortgage liabilities they were taking on.
Martin Wheatley, chief executive of the FCA, says many loans were taken on before the financial crash. “It’s just that people were optimistic about the future,” he says. “My advice to borrowers is not to bury their head in the sand. This report is a call to action.”
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