Interest-only should be broker niche

Speaking at the Manchester Mortgage Business Expo Lynda Blackwell, policy manager at the FSA, said the proposed rules for interest-only mortgages leave “some flexibility” for lenders and brokers to keep offering them.

She said given the fact interest-only could be an appropriate product for some people the value of them being advised was high.

She said: “I would have thought that’s an opportunity for brokers to find the most appropriate product for clients.”

She reiterated the FSA’s stance that lenders must evidence a repayment vehicle for interest-only but said the regulator had deliberately not been prescriptive about what that constituted.

There have been over 120 responses to the MMR so far and Blackwell said it was critical the industry understood that no decisions had been made about the final rules while consultation continues.

And she added: “The fat lady has not sung yet – that’s a really important point. I hear people blaming the MMR for curtailed lending but it’s all too easy to hide behind.

“In fact the flight to quality business makes commercial sense for lenders when funding continues to be tight.”

Blackwell acknowledged that lenders’ practical reaction to their interest-only proposals may have been an “over reaction”.

Meanwhile James Chidgey from Nationwide said he didn’t believe the mutual had overreacted at all.

But he added that brokers were well placed because interest-only needs full advice so clients understand the risk they take on.

Lee Gladwell from Platform, which withdrew from all new interest-only a few weeks ago, said he was sorry becuase he like interest-only as a product but the decision reflected Platform's choice to concentrate 90% of their business on buy-to-let.

Richard Tugwell from Virgin Money said it was a bad time to judge lenders’ reactions to interest-only policy.

And he added: “We need to wait until the final rules are out before judging lenders’ reaction – you may well see it flex back out from where it is now.”