DAs still believe in interest only

Nia Williams

November 8, 2010

This is according to TMA’s October Distribution Indicator, which also found that only 3% said that ‘maybe’ it was the borrower’s responsibility.

The responses come on the back of the Council of Mortgage Lenders’ (CML) response to the Financial Services Authority’s (FSA) consultation paper on interest-only mortgages. The CML proposed an alternative approach that it says will strengthen lender oversight and have more tolerable compliance costs and regulatory risks. One of the key points outlined was that borrowers should retain responsibility for repaying the capital at the end of the term.

In another section of TMA’s monthly Distribution Indicator, when posed the question: ‘In response to the FSA’s recent consultation paper which outlines the potential of killing off interest only mortgages, how important is it to ensure the right types of borrower have access to interest only deals?’ 90% said it was vital; 7% stated that it was extremely important; with only 3% expressing that it was important.

The Distribution Indicator also found that 39% of respondents believed the mortgage market is moving back to ‘traditional’ lending/underwriting processes to cope with current market conditions. 34% pointed out that this ‘maybe’ the case and 27% thought that this wasn’t the case. The term traditional in this instance means lending/underwriting processes being undertaken on a more manual or even common sense basis rather than relying too much on automated processing and the’ computer says no’ attitude that seems to be blighting advisers at the moment.

Commenting, Phil Whitehouse, head of TMA, said: “It’s clear from the Distribution Indicator’s findings that DA’s believe borrowers should ultimately be responsible for repaying any capital and it is also clearly the case that interest only remains an important element in the market for the right type of borrower.

“Of course it is also the intermediary’s responsibility to offer the correct advice to each individual client. By offering holistic advice intermediaries will find themselves in a better position to help clients achieve their long term financial goals and whether an interest only mortgage is included in this process is by the by.

“The bottom line is that intermediaries and their clients need choice and options on various types of products to ensure they give and get the best advice possible. As long as there is some kind of robust capital repayment provision in place, illustrated clearly with the relevant reasons and plans, there should be no problems.

“Of course we need a regulator to make sure this continues to happen but to threaten to ban such a relevant product is somewhat irrational behavior and in tough market conditions it is vital that rational and responsible decisions are made to secure the future of the industry.”

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