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CML: FSA proposals could kill interest-only
09 September 2010
The CML has warned that interest-only deals could disappear from the market as lenders abandon the product in the face of the FSA’s proposed regulatory reforms. The FSA Mortgage Market Review consultation paper suggested that lenders should be responsible for ensuring borrowers have an adequate capital repayment vehicle and monitoring its performance. However, in its News and Views newsletter, the CML said the proposed reforms would impose significant costs and regulatory pressures on lenders and could lead to the wholesale withdrawal of the product from the mortgage market. It said that the FSA's risk-averse stance was already restricting the availability of interest-only deals and further limits could exclude a wide range of borrowers from accessing a product that meets their needs. Lenders including Northern Rock and Lloyds Banking Group have already restricted repayment options, while others no longer offer interest-only to first-time buyers or those wishing to borrow more than £500,000, so excluding high-net-worth borrowers who often use interest-only deals. Only 14% of all mortgages this year have been interest-only deals without a specified repayment vehicle. The CML said: "In the current risk-averse environment - and with the clear prospect of more heavy-handed regulatory intervention - it is difficult to see how a lender could do anything other than take a very cautious view of any investment or savings plan with an uncertain outcome. "The approach described in the FSA paper is likely to lead to interest-only mortgages being withdrawn from the market." The CML said that lenders are unlikely to be prepared to shoulder the additional costs of regularly assessing repayment plans or the risk of being blamed if the plan does not ensure that the capital is repaid by the end of the mortgage term. It said: "Underlying the FSA's views on interest-only mortgages is a fundamental assumption that owning a property outright is the only outcome that can be desirable or in the interests of the borrower. "But, in a complex world, people take out mortgages to meet a diverse range of needs, some of which are already being denied or severely constrained by a shortage of mortgage funding, a risk-averse lending market and tighter regulatory controls." Published by Mortgage Solutions
