FCA: Lenders mustn't engage interest-only customers with 'marketing'

When contacting interest-only customers lenders need to ensure their letters aren’t mistaken for marketing material, The Financial Conduct Authority’s executive director of supervision Jonathan Davidson has warned.

The regulator raised concerns about consumer engagement between interest-only borrowers and their lenders this morning – and Davidson attributed this to lenders not being personal or precise enough.

He said: “It’s making it specific and less like this is some kind of marketing material.

“[Customers] doubt the motives of the lender because it’s not clear they are being offered options – they think the lender is trying to sell them something.”

He added: “If you get something specifically about you, you are more likely to engage.

“What we’ve noticed is the more specific you are about customers – about the duration left on the mortgage – the more they will understand.”

Davidson went on to say that in his personal view some lenders are being “quite generic” in the letters they are sending out, rather than effectively laying out the options for at-risk customers side-by-side.

He stressed that the FCA’s current study into interest-only is being carried out in order to plan ahead.

The regulator has identified three interest-only mortgage maturity peaks: one currently happening and the others will happen in 2027/2028 and 2032.

Therefore Davidson noted that his priority is ensuring these customers sort themselves out before the next peak, whether that’s by extending their term or by switching to a repayment option.

He said: “It’s not a crisis now – there is a huge opportunity not to have a crisis later.

“The clear message that banks and building societies need to grasp is if you do something now you have more options than if you do it later.”

For customers who don’t want to speak to lenders Davidson told them to speak to a mortgage broker, the Citizens Advice Bureau or the Money Advice Service.