FCA: Interest-only a preserve of the wealthy

Ryan Bembridge

October 18, 2016

FCA financial conduct authority

Interest-only has become a preserve of the wealthy in today’s market according to Lynda Blackwell, mortgage sector manager at the Financial Conduct Authority.

Speaking at the Mortgage Business Expo in London last week, she told brokers that clients are now better quality and more affluent than in the past, in part due to the regulator’s tighter affordability rules.

She said: “Interest-only mortgages today are becoming a preserve of the wealthy.

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“There is a very distinct move in the market for lenders post-crisis: better quality, wealthier and more affluent customers are benefitting.”

Ray Boulger, senior technical manager at John Charcol, felt there is room to loosen interest-only criteria so it becomes less of a preserve of the wealthy.

He said: “In today’s market the number of new borrowers going into arrears is absolutely tiny.

“That would suggest it’s not unreasonable to extend interest-only maximum LTVs.

“Those lenders that are currently only doing 50% and 60% could comfortably go up to 75% LTV and there would be no difference in the delinquency rate.”

He added: “The extent to which interest-only is the preserve of anything is because of regulatory changes.

“Up until 2008 you could get an interest-only mortgage up to 100% loan-to-value with similar rates – now to get one you need at least a 25% deposit.

“It’s therefore a reasonable statement to say it’s the preserve of the wealthy.”

Ashley Bradshaw, financial adviser at Prolific Mortgage Finance, agreed that minimum equity and income requirements are higher with interest-only.

He said: “I prefer clients to focus on paying mortgages off with capital repayment anyway.”

Reporting the return of credit impaired lending, Blackwell said lenders were taking fewer risks than before the crisis.

She added: “We are seeing a growing tolerance of poor payment histories, with some firms offering products to consumers with more recent arrears and multiple CCJs.

“The biggest issue around credit impaired lending in the past was simply an inadequate assessment of affordability, and that’s been dealt with through strengthened affordability rules.

“Addressing poor underwriting standards should help ensure that credit impaired mortgages being taken on are affordable.”