Research conducted by AMI indicated that 8 per cent of intermediaries failed to always issue confirmation to the client, in writing, the reasons for recommending an interest only mortgage.
The study also showed that sale of the property was the most common plan for the repayment of capital on a self-cert mortgage, with change to repayment at a later date the second most common method.
22 per cent of brokers admitted that where an interest only mortgage is arranged, they did not collect any more information about the clients’ repayment plans than those requested by the lender.
Commenting on the findings, Rob Griffiths, associate director at AMI, said: “The FSA’s recently published thematic programme outlines self-cert mortgages as a priority for the regulator in the coming months and firms can expect desk-based reviews and mystery shopping in this area. It is pleasing to note that the vast majority of AMI members are not only collecting and recording more information than that required by lenders, but also issuing suitability letters when recommending interest only products. It is imperative that brokers document the ‘reasons why’ interest only was recommended.”
Alex Hammond, PR manager at Kensington Mortgages, argued that interest only deals were a good option for some borrowers. He said: “Whether a borrower should apply for a self-cert mortgage and opt for an interest only loan are two separate issues and should be dealt with as such by a broker. There is certainly a place for interest only mortgages and they can be right for some people in some circumstances. But if a broker is unsure whether or not an interest only mortgage is absolutely the right way to go, they should always err on the side of caution with a repayment loan.”
