'Payment shocks' for mortgage borrowers

Up to 2.6m home owners with interest-only mortgages are facing a "wake-up call" after the regulator warned that up to half of these borrowers who are due to repay their loans over the next 30 years, will not have enough money to pay their loans back.

A similar proportion - around half - of the 600,000 borrowers due to repay before 2020 are estimated to have a shortfall.

The Financial Conduct Authority (FCA) says that with around 260,000 people in the 30-year group, they have no strategy in place for repaying their loan.

Consumer campaigners also raised concerns that a "significant" number of people claimed to be unaware how their loan was meant to be paid back when they took the product out and called for further work to make sure some borrowers were not mis-sold deals.

The FCA report says "payment shocks" from interest-only mortgages are likely to come in three distinct waves over the next 30 years, dependent on when the mortgage was taken out.

The director general of the Council of Mortgage Lenders, Paul Smee, told the Today programme that lenders are doing what they can to deal with the situation.

He said: "It's important that those people who feel that their plan is off course or who haven't thought about their plan talk to their lender.

"That is why the industry has made a commitment that those whose interest only policies mature before 2020, will have a communication within the next year.

"A lot will have already had that communication but we will up the game to ensure that everyone receives it," he added.

First broadcast on BBC Radio 4's Today programme on Thursday 2 May 2013.