At a Treasury Select Committee hearing, MP Michael Fallon said there was a “ticking time-bomb” of over 50s interest-only borrowers who won’t be able to repay the capital on their mortgage or remortgage if Mortgage Market Review rules are implemented.
Martin Wheatley, managing director of the conduct business unit at the FSA, said the regulator was aware of the problem but there was little it could do for existing borrowers in this position.
Wheatley said: “There is a ticking time bomb that has been created over the years. What we’re trying to do is ensure that that ticking time bomb is not getting any worse from here on in.”
Lord Adair Turner, chairman of the FSA, said that the MMR made exceptions for mortgage prisoners in exactly the situation Fallon described.
He said: “There are very specific transitional arrangements which we spent a lot of time thinking about which would enable an existing lender to roll that over in a way which was outside of our new rules because it was to an existing borrower of the same amount.
“There are very careful transitional rules that we are consulting on, precisely to deal with this very inherent problem.”
Wheatley said around one million interest-only borrowers have mortgages which will become repayable over the next 10 years but was unable to give Fallon details of how many were nearing retirement without having a repayment strategy in place.
Fallon observed: “You seem very complacent about this. You agree with me it’s a time bomb and you’re going to let it happen?”
Wheatley responded: “I agree that there are problems and we’ve built up strategies to deal with that. One is to deal with new mortgages and the other is to deal with remortgages but I’m not sure we can deal with every aspect.”
The consultation paper states that the transitional arrangements would not compel the lender to lend, even where the borrower meets the relevant conditions.
The FSA’s view is that whether to lend is a commercial decision for a lender to make.
Chairman of the TSC Andrew Tyrie said not compelling lenders to lend to borrowers trapped by the new rules was a problem and “we have to think of something” to solve it.
Turner claimed lenders were likely to lend to borrowers in this circumstance if they had a good payment history because they had demonstrated good credit.
And he added: “Even with this we may see a very significant degree of rollover where this is required but it is something we will need to track very carefully.”
