Lenders’ attitudes to first-time buyers and interestonly are similar to their position on lending into retirement and it seems that some lenders have capitulated to the FSA’s mortgage market review discussion paper before it has happened.
Although I think interest-only mortgages should only be sold through an advised process, for some people, they are fine.
Take professionals, for example. Banks can be happy for them to stay on interest-only for a while because they have an upwardly mobile career. There are also people who have fallen on hard times – are you going to say they should not be allowed to go on to interest-only as their circumstances have changed due to unplanned events?
Another example is with an inheritance. A lot of lenders would allow clients to borrow on the basis they would probably get an inheritance. Someone can always change their will but no lender would ever have lent on 90 per cent LTV on the basis there would be an inheritance but there is nothing wrong with 75 per cent LTV.
The FSA should encourage responsible lending but banks have got to be able to make their own lending decisions.
The FSA has said it is not proposing a ban on interest-only but has still not said it would allow it if there is no repayment vehicle. It has not said that in certain circumstances it could understand why an interest-only mortgage had been granted, even though no repayment vehicle is in place.
Ten years ago, nobody would have imagined that stockmarkets would have been at the same level as in 2009/10 as they were in 2000, with the consequent effect on pension plans and endowments. The endowment forecast of 10 years ago is now, in many cases, academic.
It is the same with lending into retirement. If a client is only 10 years away from retirement and is borrowing two or three years into retirement, then it is right to ask all the questions about how they are going to pay for it. But if you are talking about a 25-year loan, an awful lot of water will go under the bridge. No one knows what their retirement income will be in 25 years.
The FSA is trying to make sure of the outcome at the beginning but that is not possible. The FSA’s intentions may be honourable but it is not coming from the real world.
Where in the MMR is it acknowledged that the borrower has got to be responsible? Caveat emptor has gone out of the window.
There is so much in the MMR which is nannyism. Who knows what is going to happen in five years, let alone 25 years. If you worked on that basis, no one would ever lend and no one would ever borrow.
Danny Lovey is principal of The Mortgage Practitioner