FSA rules out ban on interest-only mortgages
Speculation that the Financial Services Authority would ban interest-only mortgages as part of its Mortgage Market Review has proved to be unfounded.
However, lenders will be required to monitor the performance of the investment product taken out by the customer to repay the mortgage at the end of its term.
Investments are performing poorly because of the weak economy and some people with interest-only mortgages are finding they have a shortfall in the funding they need to pay off their outstanding loan.
In December 2011 the FSA published proposals to limit interest-only mortgages to consumers with a “clearly understood and credible strategy” in place to repay the loan.
Lynda Blackwell, an officer in the Financial Services conduct policy division, said: “Some lenders would have liked us to ban interest-only.
“Our view is that interest-only is suitable for certain borrowers.
“We’ve said to lenders that we want you to make an informed judgement.”
The Mortgage Market Review is expected to help ensure that the mortgage market works in the best interest of both customers and lenders.
Some lenders have already withdrawn interest-only mortgage products from the market, while others offer them only to home-buyers with a deposit of between 50 per cent and 60 per cent.
In related news, Nationwide has reported a 44 per cent increase in gross residential mortgage lending to £18.4 billion.
This is particularly significant when compared with a market increase of just 5 per cent.
The building society has launched new mortgage products for holders of its FlexAccount.
Its new four-year fixed rate mortgage for Nationwide FlexAccount holders offers a rate of 3.89 per cent for loans up to 70 per cent LTV, while customers with a lower deposit are offered a four-year fixed rate at 5.99 per cent up to 90 per cent LTV.