CML responds to FSA on interest-only mortgages

Thursday, 30 September 2010 12:00 AM

Responding today to the consultation by the Financial Services Authority on interest-only mortgages, the CML welcomed the regulator's approach to having a discussion on how these products should be regulated before publishing draft rules. But it warned that if the FSA implements the proposals as drafted in its consultation paper, it is probable that interest-only mortgages will effectively vanish, restricting choice for consumers.

The CML believes that the compliance costs for lenders of annually checking the existence of borrowers' repayment methods, and the regulatory risk of the lender making a judgement on the adequacy of the repayment method, would prove prohibitive.

In its submission, the CML acknowledges concerns about borrowers having a shortfall at the end of their term, and lenders being exposed to a prudential risk by having a number of borrowers with unknown repayment methods.

However, the number of borrowers with a shortfall at the end of their term is extremely low, and where this occurs the lender is normally able to arrange an acceptable repayment plan with the borrower. Lenders do not see significant losses from interest-only mortgages, meaning that the majority of borrowers' repayment methods work.

Commenting on the submission, CML director general Michael Coogan said:

"Interest-only mortgages are an appropriate choice for a range of different types of consumers, including borrowers who rationally choose them as an alternative to renting, financially capable customers who make acceptable arrangements to repay the capital over the long term, and buy-to-let investors.

"We do not want to see measures that would effectively regulate them out of the market, and we believe it is possible to address the FSA's concerns, without imposing costs and requirements on lenders and borrowers that are likely to prove to be unacceptable."

NOTES TO EDITORS

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.4 million mortgages in the UK, with loans worth over £1.2 trillion.

2. A copy of the CML's submission can be seen on the CML website.

CONTACTS
Sue Anderson- 020 7438 8924
Bernard Clarke - 020 7438 8923
Jayne Chichester - 020 7438 8922

NIGHT/WEEKEND CALLS ONLY
Sue Anderson- 07983 388755
Bernard Clarke - 07983 388672
Jayne Chichester - 07983 388764

CML PRESS OFFICE:

www.twitter.com

Tags: