What is an interest-only mortgage?
With an interest-only mortgage, monthly repayments just cover the interest on the mortgage. Customers still need to pay off the capital – the actual money they’ve borrowed – when the mortgage term comes to an end.
You can use money from different sources to meet the payment, such as an endowment policy or savings. However, all the capital needs to be paid in one go at the agreed end date.
Types of complaints we see
If you have an interest-only mortgage, it’s natural to be concerned about what might happen to your home if you can’t pay off the capital when the mortgage term ends.
If you’ve found yourself in a situation where you’re not going to be able to pay off the mortgage, you might:
- have asked your lender for more time or options to pay off the capital
- think that interest-only wasn’t right for you in the first place
- feel things weren’t properly explained – either from the start, or during the mortgage term
Customers usually come to us in the middle or towards the end of their mortgage term. But we can help even after a house has been repossessed.
It’s important you tell us in your own words about your situation and what happened in the events leading up to it.
How to complain
It’s important you talk to your lender as soon as you know you’ll struggle to pay off the capital. That way, you have the chance to work out an approach that can work for you – and it avoids a bad situation getting worse.
Your lender needs to work with you constructively. If you can’t reach an agreement then you can make a formal complaint to them.
They need to have the chance to put things right. They have to give you their final response within a specified time limit. After that, if you’re still unhappy you can get in touch with us – we’re here to help.
Find out more about how to complain.
What we look at
Problems with the sale
If you think the interest-only mortgage was mis-sold, we’ll look at the rules in place when you took out your mortgage, and what you were told. We’ll decide whether you received advice, and if so, whether it was suitable. This should have included advice about a repayment plan.
We’ll ask you what you remember and may ask for:
- the fact-find (the lender’s summary of your circumstances at the time)
- the application form
- the offer and any illustrations
Remember that your circumstances might have changed after the mortgage was sold. We might decide the mortgage wasn’t mis-sold when you took it out, but we might still need to look at how your lender’s dealing with your current situation.
Problems during the mortgage term
If you’ve raised concerns about being able to pay off the capital when it’s due, we’ll check your lender has responded fairly and constructively. They must do this, even if they didn’t give you advice about the mortgage and it wasn’t mis-sold.
So we’ll look at whether:
- you’ve had a fair chance to explain your circumstances
- the lender has listened to any reasonable request you make, such as converting the mortgage to a repayment loan, or giving you more time to pay
Putting things right
If we decide that a lender hasn’t done enough to help you, we’ll discuss a fair arrangement based on your circumstances. We may tell them to pay compensation for any distress or inconvenience they may have caused you.
If we think you received poor advice, we’ll try and put you in the financial position you’d be in if you’d received proper advice. This might mean telling the broker or lender to make adjustments to the capital balance, or to compensate you for the cost of changing your arrangements, such as setting up and/or closing down the mortgage.
If we decide the mortgage was suitable, but can see there’s likely to be an issue with your ability to pay off the capital, we’ll ask you to work with your lender to agree a realistic repayment plan.
‘We were given the wrong advice’
‘My interest-only mortgage was unsuitable’
'We didn't understand what an interest-only mortgage involved'
'I didn't realise my mortgage was interest-only'
Where to go next
The Money Advice Service has more information about mortgage arrears on its website.