Press
Mortgage Solutions 18th Dec 2006
Advice cited as basis for interest-only choice
A large proportion of borrowers without repayment plans in place for an interest-only mortgage chose the product because they were recommended it by a professional, the FSA's latest report on the market has found.
A significant minority of the 857 respondents questioned by the FSA said they had "no idea or definite plans" on how they would repay the interest-only mortgage, while a large proportion said they had only chosen the product on professional advice. The regulator said this meant they were significantly less likely to understand the product and the risks involved.
Commenting on the findings, James Carter, an adviser at Virtue Financial, said: "Ultimately, taking out an interest-only mortgage is the client's choice, but I do not imagine many advisers would advise on an interest-only mortgage unless in exceptional circumstances."
As previously stated (Mortgage Solutions, 20/11/06, p13), the report was not critical of the interest-only market as a whole, although the FSA's research on advisers in the sector will not be published until January.
The UK regulator also released a report last week on EU legislation, warning firms not to underestimate the significance of mortgage regulation from Brussels. Having previously criticised the concept of pan-European mortgage regulation (Mortgage Solutions, 27/12/06, p6), John Tiner, chief executive of the FSA, said in the report that any regulatory outcomes should be combined with "an open-minded approach in which a decision not to intervene or to recognise industry solutions can present preferred outcomes."
Mark Sismey-Durrant, chief executive of Heritable Bank, said he understood the regulator's concern. He commented: "The FSA's move towards a more principle-based regime could be undermined by EU regulation, which tends to be much more prescriptive."