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The FCA has warned lenders against unilaterally converting interest-only mortgage customers onto capital repayment deals without the borrower's consent.

Lenders must also be able to show that they aren't charging "trapped" customers who can't move to a different lender a higher rate of interest than other customers.

The guidance came in a new FCA paper, Dealing fairly with interest-only mortgage customers who risk being unable to repay their loan, published yesterday.

It sets out what the FCA expects firms to do to ensure the fair treatment of customers who are unable to repay the capital sum at the end of the term.

Lenders must communicate early and frequently, to avoid the potential risk of non-repayment and give customers enough time to consider maturity options,.

They must also assess affordability if any variation to an existing mortgage materially increases the monthly payment, or where the revised terms extend the loan into retirement.

Lenders need to consider what help they can offer to homeowners who are unlikely to pay off their capital, and demonstrate that they have set out all the options.

These include:

a switching the mortgage to a full or part capital-repayment basis 
b extending the mortgage term incorporating a switch to a full or part capital-repayment basis 
c extending the mortgage term to provide more time to repay the capital outstanding or to sell the property 
d accepting overpayments to reduce the end-of-term balance 
e combining part redemption and any of the above 
f extending the mortgage term on an interest-only basis 
g combining any of the above

But the FCA also recognised that customers remain responsible for repaying their mortgages and that firms are not obliged to offer options at maturity. 

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