This follows previous investigations into the non-conforming, self-cert and equity release markets.
The regulator has admitted it is concerned about the risks associated with interest-only loans, but denied it is set to launch an official investigation. However, Robin Gordon-Walker, spokesperson for the FSA, said it is monitoring product sales and will take account of a sudden surge in sales in this area.
He said: “There is always a risk with interest-only mortgages that the borrower will be unable to repay the loan. Lenders and brokers must ensure that the consumer is aware of the need to set up a repayment vehicle to cover the loan. What would concern us is if there was a sudden boom in sales and borrowers were not making any provisions to repay the loan. The product data reports on sales activity is a way of monitoring the take up of interest-only mortgage products.”
Despite the FSA’s concern, the industry believes there is no need for an investigation in this area.
An industry source, said: “The subject could give rise to consumer detriment and could be seen as risky. However, less than 5 per cent of our business is interest-only and I am sure it is a very small proportion of the market as a whole. But obviously, lenders and advisers need to be aware of the risk and ensure clients are properly informed.”
Alan Lakey, partner at Highclere Financial Services, agreed: “It could be a cause for concern, but there is nothing wrong with interest-only mortgages as long as advisers and consumers remain aware of the risks associated with them. However, the FSA cannot argue with people’s preferences. Some people cannot afford a repayment vehicle and still want interest-only. As long as they are made aware of what this means, then this remains an option.”
