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John-Phillips

May 17, 2013

Frank Eve is managing director of Frank Eve Consulting

 

“Don’t panic Mr Mainwaring!” These were the immortal words of Lance Corporal Jones in Dad’s Army and I would like to apply them to the Interest Only debate.

 

Much has been written about interest only loans since publication of the FCA’s findings and the issues these may cause going forward. The FCA have suggested that 2.6 million UK householders have interest only mortgages and they think that nearly half wouldn’t have savings or other funds to cover the final bill. The average shortfall is £71,000, according to FCA research.

 

This situation is serious but not terminal and my advice to lenders is “keep it simple”. Utilise all the tools they have already honed to help anyone who has an interest-only mortgage with a shortfall and treat them fairly.

 

In other words, identify the borrowers at serious risk and apply the solution most appropriate for their individual circumstances. Find ways to engage early with ‘at risk’ borrowers but make sure that the response to any legal challenge is robust and effective with CML support and clearly communicate the strategy to the FCA.

 

Borrowers have to take some responsibility for the decisions they make and the claims industry ‘something for nothing’ culture has to be stopped at some point. The industry was unable to achieve this with the disastrous PPI problems as lender records were not adequate and their response not robust enough (together with the fact that some borrowers did have a good case).

 

However, the interest only situation is different to PPI in that lenders should have clear records of the transactions and borrowers can’t argue that they did not know they had to repay loans at some date in the future.

 

Finally any increase in property prices will see these issues recede and with the Government hell-bent on propping up the housing and property markets, prices could start to rise over the next five years. See my previous blog below.

 

So my advice is “Don’t panic Mr Lender”

 

Having said that Lance Corporal Jones always did panic after those immortal words!

 


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