Repayment fears ill-founded

Recent fears over the lack of repayment vehicles in place for interest-only mortgages are ill-founded, claims the Council of Mortgage Lenders.

Despite the Financial Services Authority revealing that it has found a worrying amount of cases where it is not clear whether a repayment vehicle is in place, the CML claims there has been no change in this in the past 15 months.

A spokeswoman for the CML says: “We have looked carefully at this market and although there is more interest-only mortgage lending taking place there is no evidence that a higher proportion are taking out the mortgage without a repayment vehicle in place. We don’t think the interest-only market is something to worry about.”

The CML says despite increasing affordability problems for first-time buyers, the proportion taking an interest-only mortgage without evidence of a payment plan has not changed in the last 15 months.

It says this does not suggest that either borrowers or lenders are acting recklessly in the face of growing affordability problems.

CML figures show that 16% of first-time buyers take out a mortgage without a recorded payment plan in place. But the proportion was higher in the late 1990s, peaking at 20% in 1999.

However, the CML data doesn’t factor in mortgages sold in 2006 and before 2005.

The FSA says it has big concerns about interest-only mortgages and will shortly be announcing the results of its investigation into interest-only mortgages.

Clive Briault, managing director of retail markets at the FSA, says that during 2005, some 24% of new mortgages were interest-only. In more than three-quarters of these cases this accounted for 19% or one in five of all mortgages. But it was not clear from its thematic work whether a repayment vehicle was in place.

He adds: ‘This seems a high proportion. We are investigating, through interviews with 750 consumers who have recently taken out an interest-only mortgage, whether they understand the risks of interest-only deals.”