This interest-only crusadewill bring misery if rates rise
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I disagree with Lesley Titcomb, director of small firms at the FSA, on the subject of interest-only mortgages.
A mortgage is a fundamentally unfair contract unless the rate is fixed for the whole term of the loan because there is no upper limit to the interest rate that can be charged.
For disciplined borrowers there is an argument for calculating affordability at the outset and setting up the mortgage on an interest-only basis with payments dictated by affordability, thus overpaying significantly while interest rates are low but ensuring affordability when they rise.
The one-size-fits all, four legs good, two legs bad attitude of the FSA will cause terrible damage if interest rates rise. In fact, the anti-interest-only mantra put forward by the regulator in the past year or so risks catastrophe if inflation and interest rates rise by just 3%.
It should think about suitability rather than conduct a moral crusade against interest-only mortgages.
STUART DUNCAN
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