Contacting interest-only customers to make them aware of the need to fully repay their loan upon maturity is an important starting point, but lenders should offer as many repayment options as possible – and, ideally, offer free mortgage advice.
The FCA’s interest-only review identified that approximately 600,000 interest-only borrowers will see their mortgage mature before 2020, so it is imperative that lenders ramp up their contact and support efforts – and providing free advice is one sensible option.
Two lenders, similar findings
HML deployed a free mortgage advice strategy on behalf of two of our clients – and the results were similar. In both cases, of those interest-only customers contacted to ask if they would like to take advantage of free mortgage advice, around a third for both lenders were prepared to be passed over to a mortgage adviser there and then. Customers were then provided with whole-of-market options.
Interestingly, we carried out these particular campaigns for our clients before the Mortgage Market Review (MMR) came in. The demand for free mortgage advice was there prior to the regulation and, it could be said, backs up why the MMR is an important introduction to the mortgage market.
If lenders are prepared to offer free advice to their interest-only mortgage customers, this will result in appropriate outcomes for both parties. For customers, receiving mortgage advice can help ensure the product they are on is the most suitable for their needs. Offering to put them immediately in contact with an adviser means one less thing for a customer to do and could result in them taking action to improve their financial situation – such as converting to part-and-part or full repayment. In some cases, it may be an acknowledgement that the customer cannot afford to repay the outstanding balance and therefore needs to take steps towards selling the property at the appropriate time.
For lenders, having interest-only customers move to a more affordable product or increase their repayments so they will clear their mortgage at end of term improves the credit risk profile of their portfolio.
The message is clear; interest-only customers are willing to accept free mortgage advice. The question is, will other lenders step up and provide this service?
Chris Mills is chief commercial officer at HML