The Financial Services Authority says it has no plans to ban interest-only and any restrictions lenders have made to their criteria are their own doing, not the regulator’s.
Speaking at the Council of Mortgage Lenders conference last week, Sheila Nicoll, director of conduct policy at the FSA, says it was surprised by the reaction the Mortgage Market Review paper received because a lot of what it proposed was suggested by lenders.
She says: “Some lenders are already changing their approach to interest-only lending. Sometimes the change is attributed to the MMR. The truth is we can’t take credit. Several lenders changed their policies before we even signalled that we wanted to look more closely at it.”
Nicoll says the FSA originally suggested that affordability could be better assured if each assessment was made on a capital and interest basis.
But she says: “Several industry voices said the problems went further and encouraged us to apply additional measures, including going as far as making interest-only lending disappear.”
This led the regulator to suggest further measures in its July consultation paper on responsible lending.
She adds: “So we were surprised that with these open questions, we were accused of beating interest-only out of the market.”
Nicoll also reiterated the FSA’s view that regulatory changes are needed. She admitted it hasn’t done a cost analysis on all the MMR proposals, but it intends to do so and will release its findings in Q1 2011.