property is a realistic option for those with a large family house who plan to downsize when their children leave home. Although it does add that this is unlikely to be a realistic option for everyone.
Indeed, the CML has been very vocal in the interest-only debate and back in September it proposed an alternative approach which it said would 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.
REspOnsIbIlIty In response to this TMA’s monthly Distribution Indicator showed that a massive 97% of directly authorised brokers believed that borrowers should retain responsibility for repaying the capital at the end of the term. With only 3% thinking that ‘maybe’
it is the borrower’s responsibility. In another section of the survey 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. Just 7% stated that it was extremely important with only 3% expressing that it was
important. It’s clear from the Distribution
Indicator’s findings that DAs 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. Another thing that has become
increasingly clear – as touched on earlier - is the greater emphasis placed on lenders’ responsibility, both in terms of carrying the brunt of cost and the burden attached to the policing of repayment vehicles. This has somewhat worrying connotations for the distribution arena. With funding and over-riding lending costs already an issue inevitably any extra burden will force lenders to think very carefully in
regards to issuing interest-only loans. It’s a fact that several lenders have stopped allowing an interest-only element on high LTV loans and some altogether after these FSA warnings.
InnOvatIOn As such, according to the latest figures from the CML, the number of interest- only loans has plummeted to just 6% of all first-time buyer loans in December 2010. In contrast, during the same period in 2007, interest-only loans accounted for 30% of all first-time buyer loans. This fall appears indicative of the way some of the larger lenders will continue to view this market. But on a more positive note this does leave some space for smaller, more niche lenders to innovate and if possible evaluate ways in which to incorporate some interest- only element even if it is only for an introductory period.
“DAS 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.”
The FSA’s consultation period is
ongoing but it seems that the sensible way forward is for the industry to continue working together to form a process and policy so that borrowers are protected – often from themselves - whilst lenders and intermediaries are also covered. To totally banish this type of lending would be to the detriment of those who would genuinely benefit from such deals. The bottom line is that brokers and their clients need choice on products to ensure the best advice possible is given. The offering of true holistic advice will help clients achieve their long-term financial goals and whether an interest- only mortgage is included in this process is by-the-by.
tROublEs ahEad 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. But it’s also a fact that lenders are
being put under an increasing amount of pressure and as such they will be looking to the intermediary market with an amplified degree of scrutiny. It could be the case that lenders only want to deal with approved intermediaries (maybe just IFAs) who can certify that they have put repayment vehicles firmly in place. This could prevent the smaller intermediary firms from having access to interest-only type products altogether, however these may end up looking. There may even be some lenders who will look to only dealing with certain networks so that they can hold them accountable for their ARs advice on such products.
hand-tIEd But these are all somewhat dangerous games to play and having a piecemeal approach to interest-only deals could certainly have a troublesome impact on the intermediary market as a whole. When looking at this market there are also outside influences to take into account. For example it would be interesting to hear just what the European directive on this might be, as ultimately any decision could be taken out of the lenders’ hands altogether. So this remains a topic for all components in the intermediary market to keep their eyes on. The fact is we need a regulator to
make sure the market is not abused but the underlying of banning such a relevant product is irrational. In tough market conditions it is vital that rational and responsible decisions are market to secure the future of this industry. Let’s hope that lenders’ hands are not forced too much by regulatory pressures and that intermediaries will have sufficient access to the products their clients need now and in the future. n
mortgage introducer MARCH 2011 43
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56