Lenders’ hypocrisy on interest-only loans gets my goat – we just need to be sensible
Sanctimonious statements from anonymous underwriters saying things such as “if you can’t afford to repay it, you shouldn’t borrow it” get my goat.
This same person was probably penning off loans to the dozen on this basis less than five years ago.
It is logical to ensure borrowers have the means to repay their loan and I can understand assessing loans on a capital and interest basis.
The Financial Services Authority has not made rules for what circumstances interest-only is acceptable, it has left it to lenders to decide.
I am glad those responsible for the interpretation of this guidance do not have a wider remit in society. Just imagine if they applied the same knee-jerk thinking to other situations – children cut their knees at play time so they ban going outside, or there are 10 injuries a year caused by cutlery so they ban eating.
We have lenders saying what investments are suitable and what percentages they will consider, but what do they know? Why would any investment perform better than property in the UK? What is wrong in relying on the sale of your property to repay your mortgage?
Go to Nationwide’s website and download its property price index from when it first started in 1952 and you will see that in every decade house prices have almost doubled.
We have seen extraordinary times over the past 12 years and we missed an adjustment, but that was not caused by interest-only loans.
Interest-only loans did not make the credit agencies rate a self-cert mortgage at 85% LTV with County Court Judgements and arrears as a AAA rated investment.
Interest-only loans did not encourage the alleged misrepresentation of mortgage-backed securities from one institution to another.
I can see the issues with interest-only. A friend at the FSA said most borrowers do not understand interest-only but I could not see this because my client base was in London.
I don’t think intellect is regionalised – people in Hull can tie their shoe laces as well as my client in Clapham. Clients in the Lake District know they must repay their mortgage just as much as the guy who drinks Moscow Mules at his penthouse in the Docklands.
I ask all lenders to stand back, look at this objectively and not only understand what the regulator is asking of us but also what is sensible. We have a chance to affect what we do in the future but I am saddened by the lack of forward thinking being demonstrated.
Part of me believes that the current state of the housing market is going to be close to normal for a while, so let’s act like it.
Profit not prudence is why lenders are not relaxing policies
In recent years we have seen lenders cut back sharply on their interest-only lending, usually citing FSA proposals as the reason for their prudence. Perhaps this is true.
But in its most recent Mortgage Market Review paper, the FSA proposed some sensible rules that would allow lenders to relax their policies.
Two months later, lenders remain as cautious as ever, and the recent move by Abbey for Intermediaries to reduce the LTV on interest-only to 50% is at odds with these proposals.
I am now beginning to question why lenders should remain so reluctant to relax their policies.
Kevin Duffy, managing director of Mortgageforce, in his letter last week thought it was all about prudence. I’m not so sure.
I think it may be less about prudence and more about profit.
RS Mortgage Consultancy
Customer choice is taking a battering due to restrictions
The blog by Robert Sinclair, director at the Association of Mortgage Intermediaries, on Mortgage Strategy Online called for sensitivity on interest-only.
Sinclair argues that there are a lot of interest-only customers on default rates which are currently a safe haven, but that this will not always be the case.
“We must not create a straight-jacket by lenders having inconsistent and conflicting policies that give regulators space to apply all the denominators and close the options in this sphere,” he states.
Well said Sinclair – this is an area where consumer choice is starting to take a battering.
I suspect the latest high profile lender to introduce draconian restrictions did not do so for reasons induced by the FSA, but for lending and risk appetite ones.
I hope we get more honesty on that aspect and also for the sake of consumers that this does not spread any further.
Clearer rules would help get rid of grey areas of interest-only
Lenders are in panic mode. I was at one of the regulator’s MMR roadshows last week and the FSA made it clear what it will expect of lenders in relation to interest-only mortgages and the responsibility it will be placing on them
Lenders do not want that responsibility. They will have to confirm the alternative product’s sustainability and check it at least once in the lifetime of the mortgage.
But lenders are not qualified investment advisers. How can they pass judgement on an endowment policy’s performance, an ISA, or a share investment portfolio’s prospect of still being there and having reached an investment target at exactly the time when the mortgage finishes?
This will never happen, and was proved when Santander changed its criteria to reduce interest-only from 75% LTV to 50%.
This has greatly reduced, if not killed, its exposure to interest-only loans in the future. All it has done is mitigated its potential compliance and risk profile with future business. Not so good for consumers but good business sense for the bank.
It is the regulator that needs to look at how it promotes what it says, so that it is interpreted in a fair, clear and understandable way and can be seen to be fair and realistic.
We need clear rules rather than the current system where all who are regulated have an individual interpretation of its rules, which always leaves a massive grey area.
Nothing will change so we must work in a positive manner with what we have in a market that will continue to shrink for the next couple of years at least.
NatWest branch gave my client better rate during identity check
I submitted a full application for a client to NatWest Intermediary Solutions nearly two weeks ago.
I was calling for regular updates but last Wednesday I was told there was a discrepancy with the client’s name and the only way to progress the case was for the client to visit a branch with proof of identity.
The client called me from the branch to say she did not know what to do and that she was stressed as NatWest had still not agreed the case after a week.
Staff at the branch told her they could not believe it and that she should have gone to them directly rather than through a broker as they would get everything agreed straight away.
They then added that they had a lower rate in the branch than I was able to offer. But the client made it clear she was not interested in the rate as much as a quick decision.
I could hear the person in the background confirming the rate to her and that they would get it through as she already had a relationship with NatWest.
The client was embarrassed and wanted my say so before going direct. I could hardly tell her not to do this as they were promising everything that I could not guarantee from NatWest.
She called me two hours later to say the application had gone through and that it may be fast-tracked without requirement for proof of income.
Bank policy is not to discuss mortgages with brokers’ clients
If there is a discrepancy with the name of an applicant, they will be asked to visit a branch to verify their identity.
If an individual is in a NatWest or Royal Bank of Scotland branch and they have identified themselves as a broker client, our policy is not to proactively talk to them about a mortgage.
Without knowing the identity of the client or the branch at which this situation occurred, I am unable to comment further, but would like to apologise to Nigel Hakkak if the agreed approach was not observed in this instance.
We are committed to providing brokers with great range of products matched by excellent service and continuously strive for improvement.
NatWest Intermediary Solutions
It’s laziness that will expose advisers to fraud not introducers
Last week’s lead story in Mortgage Strategy warned that brokers who accept business from introducers may be exposing themselves to the risk of fraud.
Intermediaries were urged to be vigilant about who they accept business from following a spate of fraud cases involving introducers.
But introduced business should only ever be a lead – it is entirely the responsibility of the broker to act on associated due diligence, client screening and checks.
Being a broker myself it is beyond me how any fellow broker would allow anyone other than themselves or a trusted administrator anywhere near the submission or advice process.
Only sheer laziness would allow an honest firm to be caught up in anything untoward.
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