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Intermediaries defend use of interest-only loans

Montlake: ‘Circumstances’
Montlake: ‘Circumstances’

Brokers have backed the Council of Mortgage Lenders’ warning to the FSA that the mortgage market review could kill off interest-only mortgages.

The FSA has proposed new rules in the MMR that would force borrowers who take out an interest-only mortgage to have a suitable repayment vehicle in place to repay the capital. The regulator wants to make lenders responsible for checking that borrowers have a suitable repayment vehicle in place.

In a newsletter last week, the CML warned that this could restrict the number of options available to borrowers and added that lenders may withdraw interest-only mortgages from the market altogether.

Emba group sales and marketing director Mike Fitzgerald says the Government should step in. He says: “It seems like a kneejerk reaction and the Government ought to step in before any more damage is done. I am not
speaking as a broker but it prevents people having the choice of how to repay their mortgage.”

Coreco director Andrew Montlake says: “When you try and regulate, there has to be an understanding of the consequences. For many people, interest- only is a perfectly legitimate method of taking a mortgage. “It is always difficult when the regulator decides what is best for clients without knowing their particular circumstances.”

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  1. This is typical of the “nanny state mentality” which does not look at individual circumstances (know your client ??) but attempts to deny any individual choosing his own risk profile to protect the few who ignore legitimate warnings. The next step they might wish to consider is preventing people from renting if they cannot be sure of maintaining their rent in the future since they cannot be certain of state help or keeping a roof over their heads. In an era when more people have access to education and advice the FSA choose to restrict individual choice to those quite capable of making up their own minds. Why dont they concentrate on weeding out fraud and making sure that healthy legitimate businesses thrive rather than contsntly resorting to being the dperatment for the prevention of business.?

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