The Financial Conduct Authority has announced it will investigate lenders with interest-only mortgage books to make sure customers are being treated fairly.
The regulator unveiled the thematic review in its 2017/18 business plan today.
The business plan says: “Around 1.8 million UK home owners currently have outstanding interest-only mortgages (excluding buy-to-let), and many do not have an appropriate strategy to repay them.
“We will look at how firms treat borrowers whose interest-only mortgages are approaching maturity and their ability to ensure these customers are treated fairly.
“This will include those interest-only mortgages that are due to be repaid by 2020 – where borrowers have the least amount of time to find a solution.”
The regulator has delivered mixed messages when it comes to interest-only mortgages.
In 2012 former FCA chief executive Martin Wheatley said the loans could be a “ticking time bomb” because of a wave of maturing loans with no repayment strategies.
But in April 2013 the FCA said it was worried about a lack of interest-only mortgages after most lenders pulled out of the market ahead of the Mortgage Market Review’s tougher repayment rules.
Then in August 2013 the regulator asked lenders to contact interest-only borrowers whose mortgages are due to mature by the end of 2020 about how they plan to repay their loans.
The FCA carried out thematic reviews into interest-only loans in 2013 and 2014.