MILLIONS of homeowners with interest-only mortgages could be at risk of losing their homes, the financial watchdog warned today.
Nearly one in five mortgage customers have an interest-only mortgage - around 1.67 million - the Financial Conduct Authority said.
Millions still have not arranged an alternative to their interest-only loan
Borrowers on these type of loans only pay the interest on their mortgage each month, meaning the amount they owe stays the same.
Over the next few years more homeowners with these types of loans will be ending their deals and they will be required to pay off a lump sum - or risk having their home repossessed.
Despite mortgage lenders writing to customers to ask them to discuss their repayment options the amount of people sorting out their loans is low.
The FCA urging homeowners to contact their bank or lender to rearrange repayment plans.
Its not the first time that the warning has been issued to homeowners.
In July last year, the Council of Mortgage Lenders (now the UK Finannce) said that it believed one in 10 households did not have an appropriate strategy to repay the loan once it expires.
In 2013 the FCA called on banks to contact all borrowers with interest-only mortgages ending before 2020 about how they plan to repay. But only around 30 per cent of borrowers responded, according to the charity Citizen Advice.
Jonathan Davidson, from the FCA, said: “Since 2013 good progress has been made in reducing the number of people with interest-only mortgages.
"However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.”
“We know that many customers remain reluctant to contact their lender to discuss their interest-only mortgage for a variety of reasons.
"We are very clear that people should talk to their lender as early as possible as this will give them more options when it comes to the next steps they can take.”
Paul Smee, head of mortgages at UK Finance said: “The report reveals good progress by lenders, and the industry understands the need to maintain this. It highlights some areas for improvement, which the industry will take on board."
What should I do if I have an interest-only loan
HERE are some tips on how to sort out your interest-only mortgage
- Evaluate your situation: Start planning early and consider whether you will really have the money to pay off your mortagage. The sooner you start planning and dealing with it the better
- Think about extending your mortgage: Speak to your mortgage lender to see what options are available to you. You may be able to remortgage your property, or extend your mortgage period to give you time to raise the money to pay it back.
- Selling your home: Consider selling your home and move to cheaper property. If you are not confident of completing the sale in time, extending the mortgage period may be helpful.
- Shop around: Look into taking out another mortgage from a different lender. You can shop around for the best deal, or speak to a mortgage broker.
- Seek help: If you're at risk of losing your home, two Government schemes could help: Support for Mortgage Interest, and, if you're facing repossession, the Mortgage Rescue scheme. If you need general money or debt advice, try the Money Advice Service (you can try 0300 5005000) or Citizens Advice.