The Financial Services Authority has admitted that lenders are sitting on an interest-only time bomb, but says it is unable to prevent it from exploding.
Giving evidence to the Treasury Select Committee last week on the Mortgage Market Review, the regulator claimed there is nothing it can do to help the large number of borrowers in their late 50s who have no repayment vehicle in place for their interest-only mortgage.
At the hearing TSC member Michael Fallon questioned Martin Wheatley, managing director of the conduct business unit at the FSA, on why the regulator was being so complacent about the time bomb and why it was just going to let it go off.
Wheatley admitted: “There is a ticking time bomb that has been created over the last 20 years and what we are trying to do is make sure that it does not get any worse.”
Fallon responded by saying: “But you are not defusing the bomb, you are making rules for new borrowers but not tackling what I think is going to be quite a serious problem for a lot of people in their late 50s who are not going to be able to pay their mortgage.”
Wheatley claimed regulations could not solve all the ills of the last 20 years, but they can ensure new mortgages are taken out with reasonable measures in place.
But he added that the MMR includes proposals to allow some borrowers to move home or remortgage without passing the current stringent checks.