By Felicity Anderson

A leading financial regulator has warned that homeowners with interest-only mortgages are at risk of losing their properties if they fail to pay the balance due at the end of their loan.

The Financial Conduct Authority (FCA) claims that as many as one in five homeowners have an interest-only or part-interest mortgage.

Many of these borrowers have no set plan to repay the final bill, which is due at the end of their mortgage term, usually 25 years after first getting keys to their new home.

Concerned that borrowers are, “ignoring letters from lenders,” and burying their heads in the sand, the FCA has called on homeowners to urgently speak to their lenders to come up with a plan for repaying the funds when the time comes.

Acting quickly

Acting quickly, the FCA claims, provides more time to repay the money due, with the end of these mortgage terms due to peak in the next 10 to 14 years, reports the BBC.

Jonathan Davidson, executive director of supervision at the FCA said:

“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.”

What are interest-only mortgages?

Interest-only mortgages allow homeowners to pay off the amount borrowed at the very end of their mortgage term, typically after 25 years.

The FCA has said that 1.67 million full interest-only and part-capital repayment mortgages were still outstanding, representing 17.6% of all mortgages in the UK.

One peak of these final bills have occurred recently, and according to Money Saving Expert, many homeowners who converted to interest-only deals in 2003-2009 will see their final repayment demands come in 2027-2028.

Stark warning issued to homeowners with interest-free mortgages

Do you have an interest-only mortgage?

If you have an interest-only mortgage, then it’s advised that you evaluate your finances and consider whether you have enough funds to repay the money due at the end of your mortgage.

Speak to your lender first and discuss your options.

If they allow, you may be entitled to extend your loan term to give you more time to save or switch to a different type of mortgage. Try an independent mortgage broker if you need help switching.

Government support is available if you are at risk of losing your home and meet certain qualifying conditions.

Support for Mortgage Interest provides help with paying the interest on up to £200,000 of your loan or mortgage, or if you’re facing repossession, look up the Mortgage Rescue scheme.

“Pick up the phone and talk to your lender”

Hannah Maundrell, from comparison service, said:

“You may be able to remortgage your property, extend your mortgage to give you time to raise the money to pay it back or look into taking out another mortgage from a different lender.

“If you’re at risk of losing your home, there are government schemes that could help. The key thing is to pick up that phone and talk to your lender.”