The FSA’s proposal to ban interest-only seems irrational and will reduce choice to the detriment of consumers
It seems that the industry has banded together to stand firm in the face of Financial Services Authority pressure regarding its potential clampdown on interest-only mortgages.
The Association of Mortgage Intermediaries has recently gone on record criticising the regulator for being irrational in its thinking on interest-only.
It has also thrown its weight behind submissions on interest-only from the Council of Mortgage Lenders, the Building Societies Association and the Intermediary Mortgage Lenders Association. welcomed by the intermediary market and through the coming together of these important trade bodies it is great to hear so many strong voices standing up for the well-being of lenders, brokers and their clients.
Looking at interest-only it’s difficult to disagree with the sentiments of AMI director Robert Sinclair.
He says the regulator’s apparent aversion to a type of borrowing that has served many consumers well appears predetermined rather than driven by rationale.
Sinclair says that when interest-only mortgages are delivered on an advised basis and with a robust assessment of appropriateness for the customer, there is an appropriate place and use for them. “This is not an affordability issue on day one or subsequently,” he says.
It is great to hear somany strong voices standing up for thewell-being of lenders, brokers and clients
“It is the appropriate use of a funding route which, with appropriate risk assessment, should leave individuals no worse off. We must ensure we do not sacrifice a good choice for many on the altar of perfection and certainty.”
In the FSA’s eyes this remains a high risk area of the market, with some history of sufficient repayment vehicles not being in place and misplaced advice.
There is no excuse for any abuse of any product areas in the mortgage market and anyone found advising on inappropriate products or influencing clients incorrectly should face enforcement action.
But the majority of brokers have long been able to demonstrate why their advice on interest-only mortgages is appropriate and a few bad apples shouldn’t tarnish the rest of the barrel.
Having said this, as the market evolves so should intermediaries. Perhaps the prominence of interest-only has come too much to the fore and this may be the time to try to change the interest-only mentality for some borrowers.
But to banish it is to the detriment of many who would benefit from such deals.
A holistic advice approach will help clients achieve their long-term financial goals and whether an interest-only mortgage is included in this process is by the by.
The bottom line is that brokers and their clients need choice on products to ensure the best advice possible is given.
As long as there is some kind of robust capital repayment provision in place, illustrated clearly with the relevant reasons and plans, there should be no problems.
We need a regulator to make sure this continues to happen but to threaten to ban such a relevant product is irrational.
In tough market conditions it is vital that rational and responsible decisions are made to secure the future of the industry.