Interest-only Home Loans Might Disappear

The proposal of the Financial Services Authority to make lenders monitor the ability of borrowers to find the suitable plan to repay the capital element of their home loan might result in disappearance of interest-only loans, warns CML.

Commenting on the latest Mortgage Market Review by the FSA, the Council of Mortgage Lenders stated that the costs this change will bring about could lead to withdrawal of interest-only mortgages from the UK market.

The body is determined that the strategy of the Financial Services Authority has already resulted in restricted availability of interest-only home loans. As such, a certain number of UK lenders claimed they no longer offer this type of loans to first-time buyers and other groups of borrowers.

Withdrawal of interest-only loans will mean that UK consumers will have a limited choice of options, whereas the mortgage market will lose its flexibility.
As for the benefits that this reform might bring, the Council of Mortgage Lenders claims that they are unclear.