FSA could kill off interest-only, warns CML
Share
The Council of Mortgage Lenders says the Financial Services Authority risks killing off interest-only mortgages if it goes through with the proposals in its Mortgage Market Review.
In its latest issue of News and Views the CML says lenders taking responsibility for the performance of the repayment method could lead to the withdrawal of interest-only mortgages from the market.
It says in the current risk-averse lending environment, with the FSA adopting a more interventionist and prescriptive approach, firms will react cautiously to a tightening of the rules on interest-only mortgages.
It believes there is clear evidence that the FSA’s approach has already resulted in more restricted availability of interest-only mortgages.
Some lenders have announced they will no longer offer them to first-time buyers, or those wanting to borrow more than £500,000.
CML figures show that over the last year or so, almost 75% of all loans for house purchase have repayment mortgages.
This year, 8% of loans for house purchase have been on an interest-only basis, but with a specified repayment vehicle in place.
So far this year, 14% of mortgages have been interest-only with a repayment vehicle not specified.
It says that does not mean, however, that all these borrowers do not have a repayment plan in place; they may have plans for repaying the capital but have not outlined them to the lender.
The FSA’s current view is that interest-only should be used only where there is a “genuine” repayment method in place, and the consultation paper casts doubt on whether sale of the property should qualify as an acceptable method.
The CML says with the prospect of more heavy-handed regulatory intervention it is difficult to see how a lender could do anything other than take a very cautious view of any investment or savings plan with an uncertain outcome.
The CML says: “The approach described in the FSA paper is likely to lead to interest-only mortgages being withdrawn from the market.
“We do not believe lenders will be prepared either to bear the additional costs of regular assessment of the repayment plan, or accept the new regulatory risk that the plan does not achieve its objective at the end of the mortgage term and that the lender will be “blamed” for this outcome.
“The FSA’s risk-averse approach will have a major negative impact on product choice for UK consumers and the flexibility of the market to meet the needs of borrowers with different income and employment profiles.
“In our view, the reforms on interest-only mortgages outlined by the FSA risk excluding an option from particular groups of consumers for whom it is a logical choice, and delivers clear benefits.”
It says underlying the FSA’s views on interest-only mortgages is a fundamental assumption that owning a property outright is the only outcome that can be desirable or in the interests of the borrower.
View results 10 per page | 20 per page | 50 per page
Readers' comments (34)
Ben Wall | 8 Sep 2010 1:17 pm
It seems rather odd that 14% of applications are for interest only mortgages without a specified repayment vehicle. I can't think of a single lender who currently wouldn't ask for details of how the loan would be repaid.
Unsuitable or offensive? Report this comment
Anonymous | 8 Sep 2010 1:21 pm
TCF.... TC what.... seriously we should all adopt the german method and all just rent off the state. I mean how is anyone going to be able to purchase or remortgage soon?
Unsuitable or offensive? Report this comment
Anonymous | 8 Sep 2010 1:22 pm
Tee hee, at this rate, soon we won't have to do a fact find, we'll just need to tell every customer about the FSA's 'one solution fit's all' answer to their need.
Ironically, just when we all become really well qualified, those qualifications will become surplus to requirements.
Presumbaly this article is just one of those 'worst case scenario' scaremongering ones. Right?
Unsuitable or offensive? Report this comment
Liz | 8 Sep 2010 1:22 pm
throwing the baby out with the bathwater....
Unsuitable or offensive? Report this comment
Anonymous | 8 Sep 2010 1:22 pm
can someone please kill off the FSA? before they have another 'unintended consequence' of regulation that sees the death of the first time buyer, the housing market (and subsequently the markets)and quality advice provided outside the high st crooks!!!
Unsuitable or offensive? Report this comment
Mike LeGassick | 8 Sep 2010 1:23 pm
Typical sledgehammer approach from the FSA. What about the Buy to Let market or clients raising capital on an interest only basis for business purposes? Do these people actually understand clients and the marketplace?
Unsuitable or offensive? Report this comment
roger travis | 8 Sep 2010 1:31 pm
not sure if anyone else has seen
http://www.telegraph.co.uk/finance/personalfinance/7982810/Home-owners-to-be-moved-off-interest-only-mortgages.html but it appears Santander are already running scared. Automatically transfering clients at the end of their fixed/tracker automatically back to repayment. i am amazed this hasn't made nore headlines. how can it possibly be TCF?
Unsuitable or offensive? Report this comment
Anonymous | 8 Sep 2010 1:32 pm
mike, 1.23pm......No they don t and thats the whole problem. The FSA or shall we say Financial Stiffling Association, sit in their ivory towers justifying their existence by peddling out a worst case scenarion each and every time.........they would rather UK was more like Republican Korea.........thats where we are headed.
Unsuitable or offensive? Report this comment
Anonymous | 8 Sep 2010 1:33 pm
Yet another example of the FSA failing to allow individuals the freedom of choice. When are they going to understand that they cannot remove all risk from any financial transaction, unless they intent to 'outlaw' all transactions. But then, perhaps, that is the long-term objective!!!
Unsuitable or offensive? Report this comment
robert Lundon | 8 Sep 2010 1:38 pm
The FSA do not have a clue how the real world works one minute they want exerone to save for retirement then they force so called stakeholder plans on people with low charges but who is supposed to sell and admisiter them for this poultry sum , then personal savings accounts then to top it off NSI pull their products the FSA want everyone to save in a product that has no costs, no risk , flexability and be able to have clients get advise well unless we all become cival ser this is not and cannot happen The Nanny state is in control so dont save goverment will house you feed you and wipe your ass when you are no longer able
Unsuitable or offensive? Report this comment