Interest only not the time bomb it might seem

Gemma Harle is managing director of TenetLime

I am writing this from the Seychelles (well almost) thanks to a windfall. Let me explain.

Over the past few weeks we have heard more about the impending problem facing lenders who have large exposures to interest only mortgages.

The banks as well as the CML are working hard to calculate their exposure to maturing interest only mortgages, only too aware that they will need to deal with many borrowers for whom the realisation that the capital remains outstanding at the end of the term will have come as a shock.

This sudden concern about the fate of borrowers is touching but my personal experience is somewhat different. My endowment recently matured so imagine my surprise when, having phoned my lender to deliver the great news, they roundly refused to take the payment because I was on a fixed rate (at their recent suggestion!) and repayment of the outstanding capital would incur early repayment penalties.

Effectively the message was that if you know what’s good for you find something else to do with the money until the fixed rate is up.

It’s heartening to know that in times of dysfunctional lending, apparent worry about interest only loans is obviously misplaced – at least “on the ground”.

In reality I suspect these loans may well be performing as well as any other product but give lenders another excuse not to lend while they restore their balance sheets.

Whatever the reason for this self-contradictory behaviour, the industry needs to walk the talk if it really thinks it has a problem and allow people to repay. Otherwise it cannot take the moral high ground if the money is reallocated to “other causes”. Repaying is either important or it is not.

As for me – well I am not in the Seychelles yet but when I do get there I will be sending my lender a postcard.