Have Lenders Misinterpreted Interest Only Rules?

The Financial Conduct Authority has warned lenders not to pull out of interest-only mortgages as they remain an important sector.

In its annual 2013 risk outlook the regulator said it was concerned that lenders had begun to reduce their offering of interest-only deals.

In the last decade the number of interest-only mortgages grew to nearly three million in total and covering huge swathes of the country.

The FCA has branded the growth a “ticking time bomb” because of concerns borrowers were only paying off the interest and not the capital.

Many could be left owing hundreds of thousands of pounds still to pay at the end of a 25 year mortgage term.

It sparked fears of misselling as it became clear that some borrowers did not know they were only paying the interest.

In response the FCA unveiled tough new rules demanding that all interest-only borrowers have in place a repayment method for the mortgage.

It also sector in depth and found no evidence of widespread misselling and only a handful of cases where borrowers did not know they had to repay the loan.

The tough talk and new rule spooked lenders and there has been a massive exodus form interest-only with many leaving altogether and others cutting back significantly.

But interest-only has a place for people with uneven pay-checks, for example. On instance of this is bonus or commission payments for City workers.

In a tough new environment for interest-only such workers on bonuses should turn to City mortgages brokers.

What to do?

A City worker who earns a basic salary may want to repay the minimum monthly amount and then add big payments when the bonus money arrives.

But the pendulum has swung too far and the exit of major lenders from this space making options more limited for workers with uneven wages to get the right mortgage for them.

The FCA has told lenders to stay in this area but without an explicit re-assuracne against future misselling claims it is unlikely they will return any time soon.

Interest-only has got a bad name now and its image has begun to move into that of a dodgy financial product.

The only way to really scour the interest-only market is to speak to an independent, qualified mortgage broker.

Brokers know who has appetite to lend in interest-only and who does not and can save you hours of searching for the right people.

In addition misselling fears mean lenders are keen to sell interest-only deals so borrowers are fully advised and informed on what they are getting themselves into.

It means some of the best deals are only available through brokers as lenders see them as too risky to be sold through a non-advised process.

For City workers with bonus payments, the ability to secure a flexible mortgage can save thousands of pounds as well as retaining easy access to cash.

Speaking to a broker is one of the best of ways of ensuring that the more limited interest-only and flexible mortgage market is still available to you.