Interest-only mortgages 'could become next big mis-selling scandal' to hit banking sector

By James Salmon
PUBLISHED:22:52, 23 October 2012| UPDATED:09:46, 24 October 2012

 

Fears that interest-only mortgages could become the next mis-selling scandal to hit the banking sector have been raised within UKFI, the organisation which manages taxpayers’ stakes in bailed-out lenders RBS and Lloyds.
UKFI bosses were grilled yesterday by the Treasury Select Committee over the future of state backed lenders.

 

The revelation UKFI is worried about potential taxpayer liabilities comes ahead of a crackdown on future sales of interest-only loans by the City watchdog as part of sweeping reform of the mortgage market announced tomorrow.
Interest-only mortgages have been described by the Financial Services Authority as a ‘ticking timebomb’ for homeowners in their 50s.
Of the 11.2m mortgages in Britain, about four in ten are interest-only – meaning homeowners pay only the interest but not a penny on the actual loan.
Between 2011 and 2020, the FSA expects about 1.5m of these mortgages – worth £120bn – will be due for repayment.
UKFI chief executive Jim O’Neil yesterday revealed it had asked RBS and Lloyds for reassurance interest-only mortgages are being sold properly. He said: ‘They say they have been fair to customers and articulate why.’ Lloyds has set aside £4.3bn to pay compensation to customers mis-sold payment protection insurance, while RBS has set aside £1.3bn.
UKFI shot down comments made by RBS chairman Sir Philip Hampton last week when he said there was a ‘reasonable chance’ RBS could begin selling taxpayers’ 82 per cent stake before the next general election in 2015.
UKFI chairman Robert Budenberg said a disposal was ‘not something that is immediately on the horizon’.


Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-2221985/UKFI-fears-mortgages-mis-selling-scandal.html#ixzz2ACtdNjJc
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