FSA director of conduct policy Sheila Nicoll says it is not the regulator’s intention to ban interest-only mortgages.
It has proposed that interest-only borrowers should be assessed on a capital and repayment basis and has suggested that lenders should check to see if the customer has a suitable repayment vehicle in place to pay back the capital at the end of the mortgage.
At the Council of Mortgage Lenders’ Mortgage Industry Conference and Exhibition, Nicoll said people have misunderstood the message on interest-only mortgages.
She said the FSA recognises interest-only loans are suitable for some borrowers.
She said: “There is a myth around interest-only. Our discussion paper simply stated affordability could be better measured if each assessment was made on a capital and interest basis and there was support for this.
“But a number of industry voices wanted us to apply additional measures, so our July consultation asked in a very open way what those measures might be, including whether any action was necessary at all.
“We were a little surprised that with these open questions, the magic wand suddenly turned into the regulator’s big stick, threatening to move interest-only out of the market.
“You only have to read the consultation paper to see that a ban was never our view. We have always acknowledged that interest-only can be a sensible option for some consumers.”
MoneyQuest managing director Simon Jackson says: “It is a product in the armoury which has a use in the marketplace and, if used responsibly, it is a useful product for a number of people. It is not right for everybody but for some it is. I welcome the fact the FSA understand that.”