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Interest-only deals are not FTBs’ biggest problem

From Thomas Reeh 

Is it me or are others also getting tired of Isabelle Kassam’s rants on subjects she clearly has a poor grasp of? Her gem of August 21 was entitled ‘Interest-only trap could snare FTBs’.

Kassam is selective in her use of Council of Mortgage Lenders facts and not surprisingly brokers are held to be at fault. And of course that old favourite word came in again – dodgy.

Let’s set the record straight. First-time buyers are having to dig ever deeper. According to the CML, the average first-time buyer was paying 3.2 x income to get a mortgage in June which is the highest figure on record. And stronger than expected house price growth led Nationwide to revise its price growth forecast from 3% to 5%.

As a first-time buyer, would you want to miss out on that growth potential and keep renting? And property prices are set to rise further.

An ageing population means there is less turnover of stock. Low interest rates mean affordability is good but the shortage of land and the green lobby blocking developments spells bad news for first-time buyers.

Nationwide estimates a housing shortfall of 47,000 properties a year. This is good news for home owners so why wouldn’t you want to be one? Interest-only deals are OK for first-time buyers if they are appropriate to their circumstances. The amount of disclosure relating to product details makes it farcical to suggest clients don’t know they have bought interest-only deals but Kassam stirs the pot anyway.

Suitability letters, demands and needs statements and Key Facts Illustrations are just a few of the mandatory documents signed by customers in relation to repayment vehicles. This is documentation we have to produce on demand if the FSA comes calling.

There are more fundamental issues in play which make the dream of home ownership a distant one for first-timers – bigger issues than intermediaries selling interest-only deals.

Interest-only products have a vital role to play for first-time buyers as do innovative products such as Advantage’s Flexishare deal. Let’s focus on real issues and not beat up the broker community with cheap shots.

Thomas Reeh

Blackandwhite.co.uk

By email

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Market Watch

Swaps fell sharply last week with the longer term swaps falling much further than the shorter ones. Hopefully this should mean the end of lenders repricing their fixed rates upwards for a while and if we see more falls in the future we may see some cuts. However, my guess is we’re a couple of weeks away from that at the moment.

  • One-year money is down 0.04% at 5.20%
  • Two-year money is down 0.12% at 5.14%
  • Three-year money is down 0.14% at 5.13%
  • Five-year money is down 0.15% at 5.07%
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