Interest-only Mortgages Face the Axe
Interest-only mortgages, which allow borrowers to defer capital repayment until a scheduled later date, often 20 – 25 years ahead, could be axed according to The Council of Mortgage Lenders (CML).
The CML alert issued on 8th September 2010 follows proposals by The Financial Services Authority (FSA) to change mortgage regulation, including the possibility of making lenders being accountable for monitoring borrowers’ plans to make repayment.
The FSA says it wants to ensure that borrowers have a suitable plan for repaying the capital element of the mortgage (and not to kill off interest-only mortgages altogether). But, if implemented, the costs of performing annual checks and the extra regulatory burden of lenders taking responsibility for the performance of the repayment method could lead to the withdrawal of interest-only mortgages from the market.
The CML view that: “It is far from clear that the costs and the impact of restricted choice for consumers would be matched by any wider benefits” will be echoed by many.
At the moment, borrowers can select between interest-only and repayment mortgages to suit their circumstances. For many people, an interest-only mortgage is the preferred choice as they can match their repayment plans to their employment profile and earnings – it is often the case that earnings will rise through the term of the mortgage allowing an acceleration of savings at a later time, and so allowing costs to be kept low when earnings are relatively low.
According to CML, “There is clear evidence that the FSA’s approach has already resulted in more restricted availability of interest-only mortgages. Some lenders have announced they will no longer offer them to first-time buyers, or those wanting to borrow more than £500,000. Northern Rock, Lloyds Banking Group and Coventry Building Society have made changes to their interest-only policies recently.”
Charles Derby provides mortgage advice and research for all loan types. If you are taking out a mortgage or remortgaging, give us a try to see what we can offer. In addition to being able to select from all lenders, we always provide a personal service and pride ourselves on shouldering as much stress as possible on behalf of our clients to make funding house purchase as simple as possible.
