News Review
FCA issues interest only guidance By Ryan Fowler
T e Financial Conduct Au- thority last month released its fi nal guidance on how it expects fi rms to treat interest- only mortgage customers who risk being unable to repay their loans. T e regulator said it expects to
lenders treat customers
fairly and not “exploit” those in diffi culty. It also reminded lenders that repossession of a property should be “a last re- sort”. T e FCA also warned
homeowners with interest-on- ly mortgages who do not have
enough money to pay them off when they mature that it is ul- timately their responsibility to fi nd a way to clear their loan. In May 2013 research pub-
lished by the FCA found that up to 2.6 million interest only mortgages will mature
by
2041. However, it concluded that
almost half of these people – up to 1.3m homeowners – may be unable to repay the loan at the end of the term and faced an average shortfall of more than £71,000. “We wanted to understand the risks to consumers when
Hodge launches interest only
Hodge Lifetime has launched a new interest only life- time mortgage to fi ll the gap between a traditional resi- dential mortgage and existing equity release lifetime mort- gages. T e Hodge Retirement
Mortgage sees borrowers re- pay the interest on the loan monthly with the capital being repaid when the borrower ei- ther dies or moves permanent- ly into long term care. “T e current range of eq-
uity release products caters very nicely for the asset rich, cash poor customer,” said De- ian Jones, managing director of Hodge Lifetime. “For those fortunate to be
entering retirement with de- cent pension provision,
the
Retirement Mortgage off ers a credible and fl exible alterna- tive to the more traditional Equity release plan.” T e product also off ers bor-
rowers the chance to repay the loan aſt er fi ve years without
incurring any early repayment charges. For those that choose to
keep the Retirement Mortgage for life they have the option to roll-up interest once they turn 80 and are also off ered the added security of a no negative equity guarantee. Jon Tweed, sales director at Hodge Lifetime,
said: “Bor-
rowers who intend to down- size later in life, or those whose personal circumstances are likely to change, may not feel
that traditional equity release products are a viable option. T e Retirement Mortgage has been designed with this in mind.” And adviser Mary Lockyer
enthused: “A good alternative to equity release with less in- herent risks, good to see this come to the market, would be good to see more competition in this area, as so many only have downsizing as a payment vehicle, the potential take up on this could be large.”
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interest only mortgages reach maturity and borrowers do not have the capital to repay the balance due,” the regulator said. “And we wanted to develop
– with the industry – ways of tackling this issue. As the industry has been seeking a
steer from us on this area, we are setting out this guidance to help residential mortgage lenders and third-party ad- ministrators.” To comply with governance,
the FCA said that fi rms “must pay due regard to the interests of its customers and treat them fairly.” T e regulator suggested this
could include writing to af- fected customers “early and frequently” and having a writ- ten strategy in place setting out the fi rm’s policy and pro- cedural framework for manag- ing such customers.
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