Interest-only mortgages
Do you deal with customer complaints about interest-only mortgages? This could be for a financial adviser, mortgage broker or lender, or in another capacity.
This page will give you an overview of the complaints we can help with and how we approach them.
Buy-to-let investors often use interest-only mortgages. If you’re handling a complaint involving buy-to-let, see our approach to complaints about buy-to-let mortgages.
On this page
Do you have a mortgage complaint?
Complaints we deal with
Consumers come to us when they're unhappy because:
- they were advised to take an interest-only mortgage and now can’t afford to repay the capital
- their lender won’t help them because a broker advised them and is therefore responsible
- they want to switch to a capital repayment plan – but the lender won’t let them
- their mortgage term is ending, and the lender won’t let them extend it
- their mortgage term is ending, and they can’t sell their property and are being threatened with repossession
- they don’t want to apply for a term extension.
Rules on interest-only mortgages
When we look at complaints about interest-only mortgages, we use the regulatory and legal standards that applied at the time of the event that the consumer is complaining about.
The Mortgages and Home Finance: Conduct of Business (MCOB) sourcebook sets out how mortgage lenders should provide services to borrowers, covering regulated:
- regulated mortgage contracts – including first and second charge mortgages and bridging loans
- regulated equity release products
- regulated home purchase plans, and
- regulated sale and rent back agreements
In 2014, the FCA’s Mortgage Market Review brought in additional rules. You may also find it useful to look at FCA's guidance on how to treat interest-only mortgage customers who can’t pay.
In 2023, around 90% of mortgage lenders signed up to the Mortgage Charter. If the complaint you’re handling involves one of these lenders, then they are subject to the standards set out in the Charter.
Handling mortgage complaints before they come to us
Good complaint handling can repair a relationship, help build trust and confidence in financial services, and give customers a better understanding of your financial products.
We'd expect your complaint handling teams to fully understand:
- all the relevant rules and regulations, including the requirements of the Consumer Duty
- what to send us when we're dealing with a complaint about your firm.
Our decisions database holds all the final decisions we’ve published since 1 April 2013. They’re anonymised to protect the identity of complainants but are based on real-life complaints, so will give you a good picture of how we resolve disputes.
Our complaints data will give you an idea of the volume of complaints we receive and resolve, and the proportion that we have upheld in consumers’ favour.
How we resolve mortgage complaints
We only look at complaints you've had an opportunity to look into first. If the consumer is unhappy with your decision, or you don't respond to them within the time limits, they can come to us.
Each case is different, so what we require will vary. But we’ll look at the facts and evidence from both you and your customer. We’ll usually consider:
- relevant laws and regulations
- regulators’ rules in place when the event happened, including the Consumer Duty
- guidance, standards and codes of practice in place at the time of the event
- the mortgage offer, illustrations and term and conditions
- details of the change the customer has asked for rather than repaying the mortgage
- if affordability was considered, comments on whether the change is material to affordability
- details of why the customer’s request has been declined and evidence of any policies or criteria the business is relying on to reach this decision
- if the customer has advised the business of a vulnerability, comments as to how this has been taken into consideration when assessing the situation
- if the customer has asked for a term extension, comments on whether they have a reasonable plan to repay the mortgage at the end of the term
- comments on whether the customer will be able to keep up with the repayments over a longer term
- comments on whether an extension would be better for the customer financially
- details of the business’ consideration of any other options – for example, part repayment , part interest only, switching to capital repayments now
- evidence of any income and expenditure checks carried out
- mortgage offer, illustrations and term and conditions
To determine what your business has done for the borrower, we may ask for more documentation, evidence or recorded comments that show:
- any other options your business may have explored for the borrower, such as:
- part repayment and part interest only
- switching to capital repayments
- an extension
- any income and expenditure checks you may have carried out
- how the customer has managed the mortgage so far, for example, their payment history and any contact notes
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If the customer has told you they can’t pay the mortgage, we want to see that you have:
- listened to your customer and paid attention to their circumstances
- told them they can get advice on their options, and referred them to a free independent debt organisation, or suggested they speak with an independent financial adviser
- properly considered any reasonable requests they’ve made – such as, a term extension, conversion to a repayment mortgage, or making overpayments
- explored other options for them to repay the debt, such as a new mortgage with another lender or equity release
- offered to help – perhaps by changing the mortgage to a repayment loan or allowing the consumer more time to pay – and if you couldn’t help, you’ve explained why not
You should do this, even if you didn’t initially give advice about the mortgage. Repossession should always be the last resort.
It’s reasonable for you to expect the customer to repay the mortgage. But where the customer can’t pay immediately, you should work with them to try and find an alternative solution. That may mean, for example, giving them more time if necessary, rather than taking repossession action.
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When someone complains about a mis-sale, we’ll look at whether:
- the customer did receive advice and what the advice was
- the mortgage was suitable, and
- the customer had a realistic plan to pay the balance of the mortgage
When a customer thinks they got advice – but the paperwork suggests they didn’t – we’ll explore whether it was clear your firm was making a recommendation.
In cases where a broker advised the customer, the broker is usually more liable for making sure the mortgage was suitable.
However, since 2014 the lender has also been responsible for checking the borrower’s got a plan for repaying mortgage capital. We sometimes see cases where the customer’s situation has changed since they took out the mortgage. So, if you’re a lender, you should make sure you:
- lent responsibly, by considering the customer’s repayment strategy and satisfying yourself it was plausible and realistic
- communicate with the consumer every few years to ask how they intend to repay the capital, and supporting them if their repayment strategy is no longer on track or no longer available
- encourage your customer to get in touch if there are any problems
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We may ask for more documentation, evidence or recorded comments that show:
- what sort of change the customer asked for as an alternative to repaying the mortgage
- whether you considered affordability and whether the requested change was would be affordable – as well as whether it would enable them to repay the mortgage in a reasonable time
- why you declined the customer’s request and any policies or criteria you may rely on to show how you reached this decision, and what alternatives you considered
- whether the customer told you they were vulnerable in any way, and how you took their vulnerability into account when assessing the situation
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We may ask for more documentation, evidence or recorded comments that show whether the customer:
- has a reasonable plan to repay the mortgage at the end of the term
- will be able to keep up with the repayments over a longer term
- understood that in extending the term they’d pay more overall
We follow the FCA’s dispute resolution rules (DISP) and will take into account how you’ve tried to put things right. We’ll also consider whether the sale was by a 'tied' representative of a product provider, or an independent financial adviser.
If we uphold a consumer's complaint, we'll tell you what you need to do to put things right. We may ask you to:
- refund the cost of setting up and closing down the mortgage – if we think the consumer had the wrong mortgage
- put the consumer in the position they would’ve been in if they’d received proper advice
- work out a realistic repayment plan with the consumer – if the mortgage was suitable, but the consumer can’t repay the capital
- ask you to pay compensation for any distress and inconvenience caused.
When awarding compensation, we’ll consider what the customer might have done differently if the mistake hadn’t happened. For example, they may:
- have taken out a different mortgage, or put a repayment plan in place
- not have taken out a mortgage out at all
Case studies
‘We were given the wrong advice’
Mortgages
‘My interest-only mortgage was unsuitable’
Mortgages
'We didn't understand what an interest-only mortgage involved'
Mortgages
'I didn't realise my mortgage was interest-only'
Mortgages
Customer complains - but lender says it's too late
Banking
Business Support Hub
Businesses and consumer advisers can contact our Business Support Hub on 020 7964 1400 for information on how we might look at a particular complaint, or for guidance on our rules and how we work.
We also work with businesses and other organisations to help prevent complaints.