Interest-only mortgages tightened again as families face massive increase in repayments

Regulator to force banks to ensure their customers have a viable repayment plan

October 22, 2012

An FSA report to be published this week will tighten rules which force mortgage lenders to thoroughly check whether borrowers have a credible repayment plan. There are almost 10 million mortgages currently taken out in the UK, of which 42 per cent are interest-only. A huge proportion of borrowers with interest-only deals are not on course to complete their repayment plan in time for the expiry of their mortgage. Standard Life recently revealed that out of 106,000 mortgages which mature this year, a whopping 104,000 would fail to settle the home loan debt.

The FSA’s recommendations will force lenders to examine more closely their customers’ repayment plans to see if they are really viable. If not borrowers will be forced onto a capital repayment plan which could increase their monthly costs significantly. For example monthly interest-only repayments on a £200,000 4 percent deal would be £666, whereas a capital repayment deal would cost £1,055.

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