Lenders will lead moves to ditch interest-only products, says AMI
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Lenders will spearhead a reduction in interest-only mortgages, not the Financial Services Authority, says Robert Sinclair, director of the Association of Mortgage Intermediaries.
Sinclair says these loans still have a part to play in the mortgage market and believes the FSA will recognise this and not ban them.
He believes lenders will make the decision themselves to restrict the availability of interest-only borrow-ing because of capital adequacy requirements.
Sinclair says: “There is still a place for interest-only loans. I think the reduction in these types of loans will not come from the FSA but lenders. A number of lenders have done too much of this lending and need to reduce their liabilities.
“Capital adequacy rules are changing and interest-only loans on their books will be viewed as permanent debt and not one that is being reduced.”
In its latest issue of News & Views last week, the Council of Mortgage Lenders warned that pressures on funding might intensify in 2011 as the deadline for firms to repay their commitments under official support schemes draws nearer.
By the end of last November, out-standing funding advanced to firms under the Special Liquidity Scheme had declined by £75bn, leaving a balance of £110bn to be repaid.
There are also commitments to repay a further £120bn through the Treasury’s Credit Guarantee Scheme.
The CML says it will focus on representing lenders’ views as the Bank introduces new rules on transparency for mortgage-backed securities and covered bonds.
Firms will also implement new requirements under Basel III, Solvency II and the FSA’s new liquidity regime.
In its newsletter the CML says: “The impact of new regulatory require-ments on wholesale mort-gage funding markets will be a key issue in 2011 and beyond. It is essential that regulatory reforms do not impose onerous requirements that could hold back a recovery.”
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