The questions Tyrie put to the FCA chief executive in the letter included:
• Does he think firms now have ‘a communications strategy’ in place which ‘encourages customer engagement’?
• What will the FCA do to assess why 2.5% of interest only borrowers had no idea at point of sale that they needed a repayment plan and still have no strategy in place?
• Does the FCA believe that the concepts of ‘buyer beware’ and consumer responsibility apply to the issues facing interest-only mortgages?
• Does he believe interest-only mortgages have a future in the mortgage marketplace?
Wheatley responded by saying that lenders must place prominent reminders in interest-only borrowers’ annual mortgage statements that they need to have a strategy in place to repay the capital they owe.
Regarding the 2.5% who did not understand the product at point of sale, Wheatley said: “Whilst it is impossible to rule out some instances of poor practice, we are not currently planning further work into historic sales practices. Instead we are focussed on encouraging lenders and consumers to act now to mitigate the potential future consumer detriment.”
But the FCA has ruled out banning interest-only loans. “We believe that interest-only mortgages have a place within the future mortgage market but that customers should have a clearly understood and credible repayment strategy in place to repay their loans at the end of the term,” said Wheatley.
“This is why our new rules, which come into force in April 2014, will require lenders to undertake a robust underwriting assessment to confirm that interest-only customers have such a strategy in place.”
Commenting on the letters Tyrie said: "The FCA's research into interest-only mortgages was a useful, forward-looking exercise. It provides valuable information and guidance for consumers.
"This work is not a one-off; other thematic reviews of key areas are underway. An important precedent has been set. The Treasury Committee will look closely at any further reviews published by the FCA.
"Following the recent scandals in banking, it is easy to forget that customers have responsibilities too. This research makes clear the risks associated with interest-only mortgages."
