TR18/1: The fair treatment of existing interest-only mortgage customers

This report shares the findings of our thematic review into the fair treatment of existing interest-only mortgage customers by lenders.

Show TR18/1 (PDF)

Who should read this

Our findings will primarily be of interest to residential mortgage lenders and administrators of regulated mortgage contracts. Mortgage intermediaries and consumer groups as well as customers with interest-only mortgages will also be interested in the findings.

What our scope was

We wanted to assess how lenders were treating customers with existing interest-only mortgages who may have a repayment shortfall at maturity and to consider any changes lenders may have made since our guidance was published in 2013.

We also wanted to find out why large numbers of interest-only mortgage customers do not respond when their lenders try to contact them during the mortgage term. We commissioned Kantar Public to complete research on customer behaviour and the findings of this, together with the technical report, should be read in conjunction with the thematic report.

What we found

  • We found that all the lenders in the sample have made progress in the fair treatment of interest-only mortgage customers. Strategies exist to contact customers with interest-only mortgages, understand their repayment plans and provide appropriate solutions where no suitable plan is in place.
  • From the information in the customer files we reviewed, we considered that the repayment options recommended were likely to be fair in almost all cases and that the potential harm caused by non-repayment at maturity  was reduced. However, the processes customers had to follow were often challenging.
  • All the lenders in the sample understand the value, volume and maturity profile of their interest-only mortgage book. A few also had detailed information about repayment plans and customer response rates, and had undertaken segmentation and analysis of the potential risks which could help shape communications.
  • Customers who engaged with their lender earlier in the term of the mortgage and who had no suitable repayment plan had a wider range of affordable repayment options available than those who made contact later. We are encouraging customers who have an interest-only mortgage to speak to their lender as early as possible. In order to achieve this we are publishing a leaflet ‘Interest-only mortgages: act now and talk to your lender’ which sets out how customers might benefit from talking to their lender early.

Next Steps

We will continue to monitor this risk as part of our ongoing activity through regulatory data and other sources such as complaints and market intelligence.

All lenders who were included in the review will receive feedback on our findings and we will continue to review the implementation of their interest-only strategies through ongoing supervision.