The FCA report into interest only mortgages and the importance of expert advice

Recent research from the Financial Conduct Authority (FCA) has found nearly 1.3 million interest only mortgage customers may find themselves with a shortfall situation at the end of their loan term. While the majority of interest only borrowers have a payment plan to cover any shortfall, there is still a significant minority who have no plan in place and who may not be fully aware of the scale of the gap they face. Although the amount varies from borrower to borrower, the FCA puts the average deficit at just over £71,000.

For these people, equity release may provide a solution to their shortfall, and an alternative to downsizing. However, it is important for those looking into equity release to seek specialist advice. Equity release is a complex product with significant financial repercussions and it is crucial to understand the full implications before embarking on a scheme.

Rightly, it has been pointed out that mis-selling is not the cause of the problems with interest only mortgages. Lenders adhere to strict guidelines and informing borrowers of the need to create a plan to payback their debts is standard procedure. That said, there does appear to be a portion of people who haven't fully appreciated the implications of an interest only agreement. Involving a specialist would reduce the risk of borrowers failing to understand the importance of adhering to advice, as their in-depth knowledge would allow them to better explain the benefits and consequences of their undertaking. When committing to financial products of the magnitude of a mortgage or equity release product, specialist advisers and expert lawyers are fully equipped to ensure all parties understand the agreement and should be the first port of call.

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