Equity release lender More 2 Life said it has seen an increasing level of interest-only mortgagors contacting it for solutions, but warned that more needs to be done to protect consumers.

It is now calling on the Financial Services Authority to force banks to contact customers and warn them that they need to have a suitable repayment vehicle in place.

It suggested this would follow a similar scheme used for endowment customers in which customers were grouped into red, amber and green categories based on their circumstances.

The average equity release customer is carrying over £43,000 of interest-only mortgage debt, More 2 Life said.

It added that 80% of customers using its Interest Choice Plan used the funds to clear mortgage balances ahead of the fixed repayment date and switch to a lifetime mortgage without a fixed repayment date.

Jon King, managing director of the firm, said: “The interest-only time bomb is purely and simply about the looming repayment dates for mortgages. Customers can pay the interest but they need to find substantial sums to clear the capital borrowed.

“The concern is that people hope for the best which is why regular warning letters from lenders will help concentrate customers’ minds.

“Lenders themselves already acknowledge it is a major issue and many are concerned. Red, amber and green letters would help provide that clarity and help customers.”