FCA and Industry Working Group on interest-only mortgages

The group’s primary purpose will be to support and inform the FCA’s review of its existing IO guidance (FG13/7 PDF[1]) as it committed to when it published the consumer research and market data analysis[2]. 

The number of IO and part-and-part mortgages, as at the end of 2022, has reduced to just under 1 million compared to 2 million in 2015. This number has reduced more quickly than anticipated and indicates those borrowers had better than expected repayment strategies or have been able to move onto a repayment mortgage. 

Whilst the number of interest-only mortgages has reduced faster than expected, the challenge remains for a significant number of borrowers. Any interest-only borrowers who are unsure if their current plan is sufficient, should speak to their lender as soon as possible, to discuss their options.

24 July 2024 meeting

The group agreed the minutes from the meeting on 12 June. 

This was the group’s final meeting. It focused on: 

• Annex 2: Prudential forbearance, reporting and provisioning for non-repayment of the capital balance at the term end (FG13/7 PDF[1])  
• reviewing whether the aims of the terms of reference had been achieved 

The group discussed: 

• the current and potential impact of prudential requirements for firm decision making for past term interest-only accounts  
• if the group had achieved the aims set out in the terms of reference 

Firms noted that their focus is on ensuring good customer outcomes for borrowers who cannot fully repay the capital owed at maturity. Prudential considerations do not determine what support firms offer. 

Under the terms of reference, the work to be undertaken was to: 

• map the current guidance as it is currently applied, including options and support offered to borrowers who are not able to repay at maturity. 
• consider how borrower contact strategies have evolved over time, and outcomes achieved
• review existing FCA guidance in light of, amongst other things, FCA research findings, firms’ experiences with interest-only borrowers and the Consumer Duty[3] coming into force
• review current follow-on mortgage products and solutions, and consider where further innovation could be beneficial

Participants agreed that the first 3 points had been covered in detail. It was noted that further discussion regarding the development and availability of follow-on products and innovation could be useful. The FCA offered to facilitate further discussion, either in a group setting or bilaterally.

The FCA thanked all participants for their engagement with the working group since February. The FCA will now finalise its review of the guidance.

1 May 2024 meeting

The group agreed minutes from the meeting on 20 March. 

The meeting focused on the: 

• documented guidance framework (see page 8, FG13/7 PDF[6]) 
• customer communication sections of the existing interest-only guidance (page 11, FG13/7)  

The group discussed: 

• how firms design and operate their training and competency framework and communication strategies 
• how far these are still influenced by the guidance 

Firms said their communications approaches have evolved over time. For example, focusing on support they can offer, in the lead-up to maturity, to borrowers who may be concerned about their ability to repay at maturity.

The group also considered how the standards set by the Consumer Duty[4] moved matters beyond the guidance.

The next meeting will be used to work through the remaining sections of the guidance including the annexes.

Between meetings, members of the working group continue a line-by-line review of the guidance. 

20 March 2024 meeting

The minutes from the meeting on the 8 February were agreed.

The group considered the governance and management information sections of the guidance (FG13/7 PDF[7]). The group discussed the usefulness of these sections in helping firms set their strategies, ensuring the right data is captured to understand borrowers' circumstances and provide the right level of support. The group also considered how the standards set by the Consumer Duty aligned with the guidance.  

The Group commented on the principle of including good and poor practice examples in the guidance. Firms said these could be useful to contextualise the guidance, to re-affirm expectations, and assist second (and third) line assurance.

The next meeting will be used to work through the customer communication and staff training and competence (documented guidance framework) sections. Between meetings working group members are contributing to a line-by-line review of the guidance.

8 February 2024 meeting

Members agreed the Terms of Reference[-1], this has now been published.

Noting the FCA research from 2013[0] and 2022[2], the group discussed:

• the changing market
• the rate and handling of current maturities
• possible future challenges

The group was asked at what point would they first make contact with the borrower about their repayment strategy. Participants outlined different strategies and engagement rates. The group agreed that successful, early engagement allowed for borrowers to consider a wider range of repayment options.

The group will begin its review of the FCA’s guidance in subsequent meetings. They will also take a deeper look into engagement strategies, as well as the other ways borrowers who cannot repay their mortgage at maturity can be supported.