Adam Blackwell

The End of Interest Only Mortgages?

Interest only mortgages could soon be a thing of the past, according to a new report released by the Intermediary Mortgage Lenders Association (IMLA).

The IMLA has stated that building societies and banks may soon abandon the practice of interest only mortgages if further stringent regulations for the product are implemented by the FSA

The FSA has already proposed new rules regarding interest only mortgages, which would mean lenders have to assess the affordability of the loan on a repayment basis instead of an interest only basis, as well as carrying out yearly checks that borrowers actually have an affordable repayment method in place.

The IMLA, however, says that such stringent checks are unnecessary, and introducing an updated affordability test is more than enough regulation than is already needed. Peter Williams, the director of the IMLA, is warning the FSA that its attempts to create a more flexible market for borrowers could result in the exact opposite.

"The FSA needs to find a balance in what it proposes," Williams cautions, "so that lenders are still able to offer interest only loans and thus meet a diverse range of customer needs."

Interest only mortgages have already come under fire from lenders, with Lloyds saying it will begin carrying out spot checks on mortgage brokers to check that customers are actually financially able to repay their loans. In July this year, only 18% percent of mortgages were interest only, compared to 83% back in 1988.

This article is not intended and does not in any way provide advice. If you require professional Independent, whole of market mortgage advice you must speak to a qualified mortgage broker.

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