Almost half of UK homeowners with an interest-only mortgage could struggle to repay their mortgage at maturity because they haven't set up a financial vehicle to clear the debt.
But too many lenders have yet to wake up to this fact, or take adequate steps to deal with what is set to be a growing problem, according to a new report from outsource debt solution specialist Ascent Performance Group.
This follows research last month showing that thousands of elderly people with interest-only mortgages risk losing their homes.
When UK homeowners with interest only loans were asked how they intended to pay back the capital on their mortgage, 20% said they have no clear plans in place or don't know at this stage how they were going to pay back the sum.
They face the very real threat of not being able to repay their mortgage, the report said.
A further 37% don't have a financial vehicle in place. They were either planning to downsize and sell their current property, rely on their family for financial support, sell a second property, or switch to a more expensive repayment mortgage.
Only 43% said they had a suitable financial vehicle to repay the loan.
Ascent said its report reinforces the Financial Conduct Authority's view that lenders must take further action to avoid a disaster that could affect huge numbers of homeowners.
Niall Gilhooley, chief executive at Ascent, said: “Our findings highlight a potentially huge issue not only for homeowners, but also for lenders if they do not address the issues.
"We are aware of a number of responsible financial institutions taking proactive steps to deal with the problem, but it is certainly not as widespread an approach as might be expected.”
Ascent carries out visits on behalf of lenders to ascertain how the capital on interest-only loans will be paid back.
Its latest report into the issue follows a recent FCA paper which estimated that six million interest-only mortgages will be due for repayment by 2020.
The FCA said that although 90% of lenders were generally endeavouring to treat customers fairly, they were at different stages in terms of their plan for dealing with the issue.
Niall added: “We certainly support the FCA’s call for more action to deal with the issue. Indeed, we had been working with a number of lenders on interest-only mortgage repayments long before the FCA issued its paper.
"The Building Societies Association recently stated its concern that homeowners who don’t have a plan in place are the people most reluctant to speak with their lender. Lenders simply cannot leave the current situation to develop further.”
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